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Discover Financial Services (NYSE:DFS) and Capital One Financial Corporation (NYSE:COF) have agreed to extend the deadline for their proposed merger to May 19, 2025, in light of ongoing litigation and the need to secure regulatory approvals. This extension was disclosed in a recent SEC filing by Discover.
According to InvestingPro data, Discover enters this merger from a position of strength, with a market capitalization of $50.19 billion and an impressive 86.78% return over the past year.
The merger, initially announced on February 19, 2024, involves a two-step process where Discover will first merge with a Capital One subsidiary, followed by a merger into Capital One itself. Concurrently, Discover Bank will merge with Capital One’s national bank subsidiary.
Despite unanimous board approval from both companies, the merger has faced legal challenges. Three lawsuits have been filed against Discover and Capital One, alleging deficiencies in the joint proxy statement/prospectus provided to stockholders. The companies maintain that the claims are without merit and the supplemental disclosures made in the SEC filing are not legally necessary.
In anticipation of the merger, special stockholder meetings are scheduled for February 18, 2025, where stockholders will vote on the merger-related proposals. The recent SEC filing includes supplemental disclosures to the joint proxy statement/prospectus, amending and restating certain financial analyses and forecasts used by financial advisors.
For investors seeking deeper insights, InvestingPro offers comprehensive analysis through its Pro Research Report, available for Discover and 1,400+ other US stocks, providing essential metrics and expert analysis for informed decision-making.
The filing also contains forward-looking statements regarding expected business and financial performance, highlighting potential risks and uncertainties that could affect actual results. These include legislative and regulatory changes, competitive actions, economic conditions, and the outcome of the proposed merger, among others.
The merger is subject to approval by stockholders and regulatory bodies. The extension of the merger deadline allows more time for these approvals to be obtained and for the resolution of the pending lawsuits.
In other recent news, Discover Financial Services has been the subject of significant attention following its recent earnings report and subsequent analyst outlook. The financial services company reported an adjusted earnings per share (EPS) of $5.11, significantly outperforming the consensus estimate of $3.24 and generating revenue of $4.76 billion, exceeding the anticipated $4.41 billion. Barclays (LON:BARC) updated its outlook on Discover Financial, raising its price target from $186.00 to $209.00 while maintaining an Overweight rating on the company’s stock. This adjustment reflects the firm’s confidence in Discover Financial’s performance and management’s guidance for the future.
Furthermore, Barclays analyst Terry Ma attributed the better-than-expected results to several factors, including a significant beat on provisions, a modest outperformance in net interest income (NII), and a slight increase in other income. These were partially offset by higher-than-anticipated non-interest expenses. In terms of credit performance, the 30+ day card delinquency rate stood at 3.84%, representing a year-over-year improvement and marking the first year-over-year improvement in card delinquencies since March 2022.
Discover Financial also revised its 2024 loan growth expectations to low to mid-single digits and anticipates net interest margins between 11.2% and 11.4%. The company is preparing for its merger with Capital One, projecting approximately $125 million in merger and integration costs for 2024.
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