February 20, 2024 at Capital One headquarters in McLean, Virginia.
Brendan Smialowski AFP | Getty Images
capital oneblockbuster acquisition proposal discover finance A person familiar with the matter told CNBC that if Discover decided to partner with another buyer, it would have included a $1.38 billion break-up fee, but U.S. regulators scrapped the deal. In that case, no such fee will be charged.
Capital One announced late Monday that it has agreed to buy rival credit card company Discover in an all-stock deal worth $35.3 billion.
Discover cannot actively seek alternatives, but it can accept offers from other deep-pocketed bidders before shareholders vote on the deal.
If Discover decides to accept another offer, it would pay Capital One $1.38 billion, a typical break-up for banking deals of 3% to 4% of the deal value. That’s comparable to fees, the people said.
Break-up fees are an industry practice intended to incentivize both sides of an acquisition to close the deal. If the deal goes sour, it could lead to huge payouts, such as the estimated $6 billion AT&T paid for T-Mobile after abandoning its bid in 2011 over objections from the U.S. Department of Justice.
Those monitoring the Capital One deal are particularly interested in whether U.S. banking regulators will allow it to go through. Regulators have blocked deals across the industry in recent years on antitrust grounds, saying it is uncertain to close a deal during an election year in an environment seen as hostile to bank mergers. There is.
Neither side is obligated to pay penalties to the other if regulators block a takeover, which is said to be common in banking transactions. Still, last year, Canadian lender TD Bank agreed to pay $225 million for First Horizon after the deal collapsed amid regulatory scrutiny of the major companies.
Capital One CEO Richard Fairbank was asked about the deal’s “strict regulatory background” on a conference call Tuesday, saying he believed it was “well-positioned for approval” and that both companies said it continues to provide information to regulators.
Capital One needs approval from the Federal Reserve and the Office of the Comptroller of the Currency to close the deal. The Justice Department also has the right to comment on the deal and can sue to block the deal.
The deal came after Capital One approached Discover and did not include an extensive search for all possible bidders, one of the people said.
— CNBC’s Alex Sherman contributed reporting
