38 Billion Breakup Fee

Capital One has announced its plans to acquire Discover Financial in an all-stock transaction valued at $35.3 billion, as reported by CNBC. The deal includes a stipulated breakup fee of $1.38 billion if Discover decides to pursue an alternative buyer. However, there will be no breakup fee if U.S. regulators intervene and prevent the acquisition.

While Discover is not actively seeking alternative offers, it is allowed to consider proposals from other potential buyers before the transaction is put to a shareholder vote. If Discover opts for another bidder, it would owe Capital One the specified $1.38 billion, which is in line with industry standards for breakup fees in bank deals.

The regulatory landscape poses a significant challenge for the potential acquisition, as U.S. banking regulators must approve the deal for it to proceed. Capital One CEO Richard Fairbank expressed confidence in the approval process during a conference call, stating that both companies have been in communication with the relevant regulators.

The Justice Department also holds the authority to scrutinize and potentially block the acquisition, adding another layer of complexity to the transaction. If regulators oppose the deal, neither party would owe a breakup fee, in alignment with typical practices in bank transactions.

The takeover proposal came about after Capital One initiated discussions with Discover, without conducting an extensive search for other potential bidders. With uncertainties surrounding regulatory approval, the fate of the Capital One-Discover acquisition remains under the watchful eye of industry observers and market analysts.