Capital One’s Discover Deal Includes $1.38 Billion Breakup Fee

Capital One Financial Corp.’s proposed acquisition of Discover Financial Services includes a $1.38 billion termination fee.

The fee would be payable by either company “in the event of a termination of the merger agreement under certain circumstances involving alternative acquisition proposals or changes in the recommendation of the other party’s board of directors,” Capital One said in a filing Thursday. If Discover opts to go with another bid, for example, it will pay Capital One that fee.

Breakup fees are used to incentivize both parties in an acquisition to finalize the deal and deter either party from pulling out. Capital One agreed to buy Discover in a $35 billion all-stock deal expected to be completed in late 2024 or early 2025, pending antitrust reviews and shareholder approvals. Capital One Chief Executive Officer Richard Fairbank said that the bank is “well-positioned for approval” from regulators.

The deal — the biggest merger announced globally this year — will bring together two storied consumer-finance brands and create the largest credit card issuer in the US by loan volume, surpassing the likes of JPMorgan Chase & Co. and Citigroup Inc. The deal will give Capital One access to Discover’s payment network, a combination that Fairbank called the “Holy Grail.”

--With assistance from Katherine Doherty.

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