HomeFinance NewsFinanceCapital One's Bold Move: Breakup Fee Gamble in $11 Billion Deal

Capital One’s Bold Move: Breakup Fee Gamble in $11 Billion Deal


Capital One’s acquisition has $1.4 billion breakup fee if rival bid emerges, but none if regulators kill deal


Capital One made a proposal to acquire Discover Financial in an all-stock transaction valued at $35.3 billion.

In the event that Discover accepts another buyer, it would owe Capital One a $1.38 billion breakup fee.

However, if regulators intervene and block the deal, neither party would owe the other any fees.

Discover is permitted to entertain alternative offers before shareholders vote on the transaction, but it’s unlikely they would pursue another buyer given the hefty termination fee.

Bank mergers often involve breakup fees to incentivize both parties to complete the transaction successfully.

Scrutiny from regulatory authorities is a significant factor in this deal.

In recent years, regulators have blocked industry mergers based on antitrust concerns.

Considering the current political climate, the deal might be at risk.

Nevertheless, Capital One’s CEO expressed optimism, stating that he believes the acquisition is positioned for regulatory approval.

The deal requires approval from various regulatory bodies, including the Federal Reserve, the Office of the Comptroller of the Currency, and the Justice Department.

The Justice Department holds the authority to challenge and block the transaction if it perceives antitrust violations.

  • Overall sentiment: neutral
  • Positive

    “Capital One’s blockbuster takeover proposal for Discover Financial includes a $1.38 billion breakup fee if Discover decides to go with another buyer.”

    “While Discover can’t actively solicit alternative offers, it can entertain proposals from other deep-pocketed bidders before shareholders vote on the transaction.”


    “But there’s no such fee if regulators kill the deal,”

    “Regulators have blocked deals across industries in recent years on antitrust grounds, and getting a transaction done during an election year in an environment considered hostile to bank mergers has been called risky.”

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