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

Capital One headquarters in McLean, Virginia on February 20, 2024. 

Brendan Smialowski | AFP | Getty Photos

Capital One‘s blockbuster takeover proposal for Discover Financial features a $1.38 billion breakup charge if Uncover decides to go along with one other purchaser, however no such charge if U.S. regulators kill the deal, folks with information of the matter advised CNBC.

Capital One stated late Monday it had an agreement to purchase rival credit card player Discover in an all-stock transaction valued at $35.3 billion.

Whereas Uncover cannot actively solicit different affords, it may possibly entertain proposals from different deep-pocketed bidders earlier than shareholders vote on the transaction.

Within the unlikely occasion that Uncover decides to go along with one other supply, it might owe Capital One $1.38 billion, which aligns with the everyday breakup charge in financial institution offers of between 3% and 4% of the transaction’s worth, stated the folks, who declined to be recognized talking in regards to the deal.

Breakup charges are an business apply designed to inspire each side of an acquisition to shut the transaction. They may end up in large payouts when offers bitter, just like the estimated $6 billion AT&T paid to T-Mobile after giving up its 2011 takeover effort due to opposition from the U.S. Division of Justice.

Watchers of the Capital One settlement are taking specific curiosity in whether or not U.S. banking regulators will permit it to occur. Regulators have blocked offers throughout industries lately on antitrust grounds, and getting a transaction finished throughout an election 12 months in an surroundings thought of hostile to financial institution mergers has been known as unsure.

Neither facet will owe the opposite a breakup charge if regulators block the acquisition, which is alleged to be typical for financial institution offers. Nonetheless, final 12 months Canadian lender TD Bank agreed to pay $225 million to First Horizon after its takeover collapsed amid regulatory scrutiny of the bigger agency.

When requested in regards to the “intense regulatory backdrop” for this deal throughout a convention name Tuesday, Capital One CEO Richard Fairbank stated he believed that he was “well-positioned for approval” and that the businesses have saved their regulators knowledgeable.

Capital One must get approvals from the Federal Reserve and the Workplace of the Comptroller of the Foreign money for the deal to undergo. The Justice Division additionally has the correct to touch upon the acquisition, and might litigate to dam the transaction.

The deal occurred after Capital One approached Uncover, and did not embody a large seek for all doable bidders, in line with one of many folks.

— CNBC’s Alex Sherman contributed reporting.

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