Capital One Financial Corp. agreed to buy credit-card lender Discover Financial Services in a $35 billion all-stock deal to create the largest US credit card company by loan volume.

McLean, Virginia-based Capital One will pay 1.0192 of its own shares for each Discover share, a 26.6% premium to the closing price on Feb. 16, the firm said in a statement. The transaction is expected to close in late 2024 or early 2025.

The deal brings together two storied consumer-finance brands, a combination that will surpass longtime rivals JPMorgan Chase & Co. and Citigroup Inc. by US credit-card loan volume, according to data compiled by Bloomberg Intelligence.

Capital One holders will own about 60% of the combined company and Discover holders will own about 40%, according to the statement. The acquisition will generate pre-tax synergies of $2.7 billion.

The purchase of Discover ranks as the biggest acquisitions globally this year, Bloomberg-compiled data show. The top deal so far has been Synopsys Inc.’s roughly $34 billion acquisition of software developer Ansys Inc. announced in January.

Prime Customers

Capital One is known for its commercials featuring celebrities like Jennifer Garner and Samuel L. Jackson asking, “What’s in your wallet?” The company, led by 73-year-old Chief Executive Officer Richard Fairbank, has historically catered to subprime consumers who carry a balance on their cards each month.

In recent years, Capital One has been trying to attract more premium customers that tend to be heavy-spending and more loyal. It agreed to buy the digital concierge service Velocity Black last year, pushing deeper into luxury markets dominated by American Express Co. and JPMorgan.

Discover has long focused on prime customers with better credit ratings, though it has historically shied away from the flashy sign-on bonuses and lavish perks used by many of its rivals.

Capital One is pursuing a deal following major declines in Discover shares in the second half of last year, which came after the company warned it had discovered some compliance lapses. The issue ultimately led to the resignation of then-CEO Roger Hochschild.

Discover said in January that its fourth-quarter profit dropped 62% as it continued to grapple with the fallout. The company halted buybacks last year and has been seeking a buyer for its student-loan business. In December, Discover appointed Toronto-Dominion Bank’s Michael Rhodes as its new CEO, lining him up to take over by early March.

–By Liana Baker and Matthew Monks (Bloomberg)