Capital One-Discover Merger Agreement Includes $1.38 Billion Termination Fee

If Capital One’s planned acquisition of Discover Financial falls through, one firm or the other could pay a termination fee of $1.38 billion.

This termination fee will be paid if the deal fails under any circumstance, Reuters reported Thursday (Feb. 22), citing a regulatory filing.

The merger agreement provides termination rights for both companies and provides the fee “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,” according to a Capital One filing with the Securities and Exchange Commission (SEC).

Termination fees are used to incentivize parties to an acquisition to finalize the deal, Bloomberg reported Thursday. For example, if Discover were to opt to accept a bid from a party other than Capital One, Discover would pay Capital One that fee.

Capital One announced the planned acquisition Monday (Feb. 19), saying the all-stock transaction, valued at $35.3 billion, will create a global payments platform with 70 million merchant acceptance points in more than 200 countries and territories.

In a Monday press release announcing the deal, Richard Fairbank, founder, chairman and CEO of Capital One, said: “Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies.”

By Wednesday (Feb. 21), both Congresswoman Maxine Waters, D-Calif., and Sen. Josh Hawley, R-Mo., had called on banking regulators to block the deal.

Waters said Wednesday that she is “deeply opposed” to the deal, citing concerns about the concentration of economic power in the hands of megabanks, Reuters reported.

Hawley said in a Wednesday press release speaking of the proposed acquisition: “Sounds like the credit card companies finding another way to screw the American people. This merger should be blocked — and Congress ought to cap credit card rates pronto.”

While there is a regulatory path to travel, as there is with any acquisition, this proposed deal would create a banking giant with expertise in serving both paycheck-to-paycheck consumers and those needing cross-border capabilities, PYMNTS reported Tuesday (Feb. 20).