Capital One Financial and Discover Financial Services entered into a definitive agreement under which Capital One will acquire Discover in an all-stock transaction valued at $35.3 billion.

Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share they own, representing a premium of 26.6% based on Discover’s closing price of $110.49 on Feb. 16. At close, Capital One shareholders will own approximately 60% and Discover shareholders will own approximately 40% of the combined company.

“From Capital One’s founding days, we set out to build a payments and banking company powered by modern technology. 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,” Richard Fairbank, founder, chairman and CEO of Capital One, said. “Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants and shareholders as technology continues to transform the payments and banking marketplace.”

“The transaction with Capital One brings together two strong brands with enhanced ability to accelerate growth and maximizes value for our shareholders, enabling them to participate in the tremendous upside of the combined company,” Michael Rhodes, CEO and president of Discover, said. “This agreement underscores the strength of our business and is a testament to the hard work of Discover employees. We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”

The transaction is expected to generate expense synergies of $1.5 billion in 2027 (26% of Discover operating expenses, plus 10% of Discover marketing expenses), driven by common business functions partially offset by targeted investments in the Discover network. The acquisition also is expected to generate network synergies of $1.2 billion in 2027, driven by adding Capital One debit purchase volume and selected credit card purchase volume to the Discover network.

The deal is expected to be more than 15% accretive to adjusted non-GAAP earnings per share in 2027. The transaction is expected to deliver return on invested capital of 16% in 2027, with an internal rate of return in excess of 20%.

On a pro forma basis, the combined company would have a CET1 ratio of approximately 14% at closing, and 84% of company deposits would be insured as of year-end 2023.

The transaction is expected to close in late 2024 or early 2025, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of each company.

Upon closing, three Discover Board members, to be named at a later date, will join the Capital One board of directors.

Centerview Partners served as financial advisor and Wachtell, Lipton, Rosen & Katz served as legal advisor to Capital One. PJT Partners and Morgan Stanley served as financial advisor and Sullivan & Cromwell served as legal advisor to Discover.