As filed with the Securities and Exchange Commission on April 18, 2024

Registration No. 333-     

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 

 

CAPITAL ONE FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware (State or other jurisdiction of incorporation or organization)		6021 (Primary Standard Industrial Classification Code Number)		54-1719584 (I.R.S. Employer Identification Number)

1680 Capital One Drive,

McLean, Virginia 22102

(703) 720-1000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Matthew W. Cooper

General Counsel and Corporate Secretary

Capital One Financial Corporation

1680 Capital One Drive

McLean, Virginia 22102

(703) 720-1000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Edward D. Herlihy Matthew M. Guest Brandon C. Price Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 (212) 403-1000		Hope D. Mehlman Executive Vice President, Chief Legal Officer, General Counsel and Secretary Discover Financial Services 2500 Lake Cook Road Riverwoods, Illinois 60015 (224) 405-4555		H. Rodgin Cohen Mitchell S. Eitel Jared M. Fishman Sullivan & Cromwell LLP 125 Broad Street New York, New York 10004 (212) 558-4000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective and upon completion of the mergers described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.

 

 

 

The information in this joint proxy statement/prospectus is not complete and may be changed. A registration statement relating to the securities described in this joint proxy statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This joint proxy statement/prospectus does not constitute an offer to sell or the solicitation of offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED APRIL 18, 2024

 

To the Stockholders of Capital One Financial Corporation and the Stockholders of Discover Financial Services

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

On behalf of the boards of directors of Capital One Financial Corporation (“Capital One”) and Discover Financial Services (“Discover”), we are pleased to enclose this joint proxy statement/prospectus relating to the proposed acquisition of Discover by Capital One. We are requesting that you take certain actions as a holder of Capital One common stock (a “Capital One stockholder”) or as a holder of Discover common stock (a “Discover stockholder”).

The boards of directors of Capital One and Discover have each unanimously approved a merger agreement (as defined below) pursuant to which Capital One will acquire Discover. This acquisition will accelerate Capital One’s ability to build a global payments technology company that is competitive with the largest payment networks and payments companies, and enhance Capital One’s ability to compete with the nation’s largest banks in the provision of credit cards and banking and payment services.

Pursuant to the Agreement and Plan of Merger, dated as of February 19, 2024, by and among Discover, Capital One and Vega Merger Sub, Inc. (“Merger Sub”) (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”), Merger Sub will merge with and into Discover (the “first merger”), with Discover as the surviving corporation. Immediately following the first merger, Discover will merge with and into Capital One (the “second step merger,” and together with the first merger, the “mergers”), with Capital One as the surviving corporation (the “surviving entity” or “Capital One”). Immediately following the completion of the second step merger, Discover Bank, a Delaware state-chartered bank and a wholly owned subsidiary of Discover, will merge with and into Capital One, National Association, a wholly owned national bank subsidiary of Capital One, with Capital One, National Association as the surviving bank.

In the first merger, Discover stockholders will receive 1.0192 shares of Capital One common stock for each share of Discover common stock (the “exchange ratio”) they own. Based on the closing price of Capital One common stock on the New York Stock Exchange (the “NYSE”) on February 16, 2024, the last trading day before the public announcement of the mergers, the exchange ratio represented approximately $139.86 in value for each share of Discover common stock, representing merger consideration of approximately $35.3 billion on an aggregate basis. Based on the closing price of Capital One common stock on the NYSE on [     ], 2024, the last practicable trading day before the date of the accompanying joint proxy statement/prospectus, of $[    ], the exchange ratio represented approximately $[    ] in value for each share of Discover common stock.

In addition, each share of Discover preferred stock issued and outstanding immediately prior to the second step merger will be converted into the right to receive one (1) share of an applicable newly created series of new Capital One preferred stock having terms that are not materially less favorable than the terms of the applicable series of Discover preferred stock. Each outstanding Discover depositary share representing a 1/100th interest in a share of Discover preferred stock will become a new Capital One depositary share and will represent a 1/100th interest in a share of the applicable series of new Capital One preferred stock.

Holders of Capital One common stock and holders of Capital One preferred stock (or depositary shares in respect thereof) will continue to own their existing shares of Capital One common stock or Capital One preferred stock (or depositary shares in respect thereof), as applicable, following the mergers.

The value of the Capital One common stock at the time of completion of the mergers could be greater than, less than or the same as the value of Capital One common stock on the date of this joint proxy statement/prospectus. We urge you to obtain current market quotations of Capital One common stock (NYSE trading symbol “COF”) and Discover common stock (NYSE trading symbol “DFS”).

The obligations of Capital One and Discover to complete the mergers are subject to the satisfaction or waiver of a number of conditions set forth in the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus.

We expect the mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, Discover stockholders generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Discover common stock for Capital One common stock in the first merger, except with respect to any cash received by Discover stockholders in lieu of fractional shares of Capital One common stock. For more information regarding the tax consequences of the mergers, see the section entitled “Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page 124.

Based on the number of shares of Discover common stock outstanding or reserved for issuance as of [    ], 2024, Capital One expects to issue approximately [    ] million shares of Capital One common stock to Discover stockholders in the aggregate in the first merger. We estimate that former Capital One stockholders will own approximately 60% of the common stock of the surviving entity and former Discover stockholders will own approximately 40% of the common stock of the surviving entity following the completion of the mergers.

The special meeting of Discover stockholders will be held in person on [    ], 2024 at [ ], Central Time (the “Discover special meeting”). The special meeting of Capital One stockholders will be held in person on [    ], 2024 at [    ], Eastern Time (the “Capital One special meeting”). At our respective special meetings, in addition to other business, Capital One will ask the Capital One stockholders to approve the issuance of shares of Capital One common stock to Discover stockholders pursuant to the merger agreement, and Discover will ask the Discover stockholders to adopt the merger agreement. Information about these meetings and the mergers is contained in this joint proxy statement/prospectus.

Holders of Discover preferred stock and holders of depositary shares representing Discover preferred stock are not entitled to, and are not requested to, vote at the Discover special meeting. Holders of Capital One preferred stock and holders of depositary shares representing Capital One preferred stock are not entitled to, and are not requested to, vote at the Capital One special meeting.

Each of our boards of directors unanimously recommends that the Capital One stockholders and the Discover stockholders vote “FOR” each of the proposals to be considered at their respective special meetings. We strongly support the mergers and join our boards in their recommendations.

This joint proxy statement/prospectus provides you with detailed information about the merger agreement and the mergers. It also contains or references information about Capital One and Discover and certain related matters. You are encouraged to read this joint proxy statement/prospectus carefully in its entirety. In particular, you should read the section entitled “Risk Factors” beginning on page 30 for a discussion of the risks you should consider in evaluating the mergers and how it will affect you. You can also obtain information about Capital One and Discover from documents that have been filed with the Securities and Exchange Commission that are incorporated into this joint proxy statement/prospectus by reference.

On behalf of Capital One and Discover, thank you for your prompt attention to this important matter.

Sincerely,

 

By:						By:
Name:		Richard D. Fairbank				Name:		J. Michael Shepherd
Title:		Chief Executive Officer				Title:		Interim Chief Executive Officer and
								President
		Capital One Financial Corporation						Discover Financial Services

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the mergers or determined if this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The securities to be issued in the mergers are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either Capital One or Discover, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

This joint proxy statement/prospectus is dated [     ], 2024, and is first being mailed to Capital One stockholders and Discover stockholders on or about [     ], 2024.

ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Capital One and Discover from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference in this joint proxy statement/prospectus through the Securities and Exchange Commission website at http://www.sec.gov or by requesting them in writing or by telephone at the appropriate address below:

 

if you are a Capital One stockholder: Capital One Financial Corporation 1600 Capital One Drive McLean, VA 22102 Attn: Corporate Secretary (703) 720-1000		if you are a Discover stockholder: Discover Financial Services 2500 Lake Cook Road Riverwoods, IL 60015 Attn: Corporate Secretary (224) 405-4555

You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five business days before the date of the applicable special meeting. This means that Capital One stockholders requesting documents must do so by [    ], 2024, in order to receive them before the Capital One special meeting, and Discover stockholders requesting documents must do so by [    ], 2024, in order to receive them before the Discover special meeting.

You should rely only on the information contained or incorporated by reference in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [     ], 2024, and you should assume that the information in this joint proxy statement/prospectus is accurate only as of such date. You should assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of the date of such incorporated document. Neither the mailing of this joint proxy statement/prospectus to Capital One stockholders or Discover stockholders, nor the issuance by Capital One of shares of Capital One common stock pursuant to the merger agreement, will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in, or incorporated by reference into, this joint proxy statement/prospectus regarding Discover has been provided by Discover, and information contained in, or incorporated by reference into, this joint proxy statement/prospectus regarding Capital One has been provided by Capital One.

In addition, if you have questions about the mergers or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, contact Morrow Sodali, the proxy solicitor for Capital One, by calling (800) 662-5200 for stockholders or (203) 658-9400 for banks and brokers or by emailing COF@investor.morrowsodali.com, or Innisfree M&A Incorporated, the proxy solicitor for Discover, by calling toll-free at (877) 687-1873 or collect at (212) 750-5833. You will not be charged for any of these documents that you request.

See the section entitled “Where You Can Find More Information” beginning on page 189 for further information.

Capital One Financial Corporation

1680 Capital One Drive

McLean, VA 22102

NOTICE OF SPECIAL MEETING OF CAPITAL ONE STOCKHOLDERS

To Capital One stockholders:

On February 19, 2024, Capital One Financial Corporation (“Capital One”), Vega Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of Capital One, and Discover Financial Services (“Discover”) entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”). A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus. A summary of the merger agreement is included in the section of the accompanying joint proxy statement/prospectus entitled “The Merger Agreement.”

NOTICE IS HEREBY GIVEN that a special meeting of holders of Capital One common stock (such holders, the “Capital One stockholders,” and such meeting, the “Capital One special meeting”) will be held at Capital One’s campus at 1600 Capital One Drive, McLean, Virginia 22102 on [    ], 2024 at [     ], Eastern Time.

At the Capital One special meeting, you will be asked to vote on the following matters:

 

•

A proposal to approve the issuance of Capital One common stock in connection with the merger of Merger Sub with and into Discover as merger consideration to holders of Discover common stock (the “Discover stockholders”) pursuant to the merger agreement (the “Capital One share issuance proposal”); and

 

•

A proposal to adjourn the Capital One special meeting, if necessary or appropriate, to solicit additional proxies if, immediately prior to such adjournment, there are not sufficient votes to approve the Capital One share issuance proposal or to ensure that any supplement or amendment to the accompanying joint proxy statement/prospectus is timely provided to Capital One stockholders (the “Capital One adjournment proposal”).

The board of directors of Capital One (the “Capital One board of directors”) has fixed the close of business on [    ], 2024 as the record date for the Capital One special meeting. Only holders of record of Capital One common stock as of the close of business on the record date for the Capital One special meeting are entitled to notice of, and to vote at, the Capital One special meeting or any adjournment or postponement thereof.

Capital One has determined that Capital One stockholders and holders of Capital One preferred stock are not entitled to appraisal or dissenters’ rights under the Delaware General Corporation Law in connection with the transactions contemplated by the merger agreement.

The Capital One board of directors unanimously recommends that Capital One stockholders vote “FOR” the Capital One share issuance proposal and “FOR” the Capital One adjournment proposal.

If you have any questions or need assistance with voting, please contact Capital One’s proxy solicitor, Morrow Sodali, by calling (800) 662-5200 for stockholders or (203) 658-9400 for banks and brokers or by emailing COF@investor.morrowsodali.com.

Your vote is important. We cannot complete the transactions contemplated by the merger agreement unless Capital One stockholders approve the Capital One share issuance proposal. The affirmative vote of a majority of the votes cast by Capital One stockholders at the Capital One special meeting is required to approve the Capital One share issuance proposal.

Each copy of the joint proxy statement/prospectus mailed to Capital One stockholders is accompanied by a form of proxy card with instructions for voting. The joint proxy statement/prospectus explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the Capital One special meeting. Please carefully review the joint proxy statement/prospectus, including the annexes thereto and the documents incorporated by reference therein, in its entirety.

Whether or not you plan to attend the Capital One special meeting in person, we urge you to please promptly complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope or authorize the individuals named on the accompanying proxy card to vote your shares by calling the toll-free telephone number or by using the Internet as described in the instructions included with the accompanying proxy card. If your shares are held in the name of a bank, broker, trustee or other nominee, please follow the instructions provided by such bank, broker, trustee or other nominee.

Due to space limitations, attendance is limited to Capital One stockholders and persons holding valid legal proxies from those stockholders. Admission to the Capital One special meeting is on a first-come, first-served basis. Registration will begin at [ ] a.m., Eastern Time. Valid government-issued picture identification must be presented to attend the Capital One special meeting. If you hold Capital One common stock through a bank, broker, trustee or other nominee, you must bring a copy of a statement reflecting your stock ownership as of the record date, and if you wish to vote in person, you must also bring a legal proxy from your bank, broker, trustee or other nominee. Cameras, recording devices, and other electronic devices are not permitted. If you require special assistance at the Capital One special meeting, please contact the Corporate Secretary at 1600 Capital One Drive, McLean, VA 22102.

By Order of the Board of Directors

Matthew W. Cooper

General Counsel and Corporate Secretary

Capital One Financial Corporation

[     ], 2024

Discover Financial Services

2500 Lake Cook Road

Riverwoods, IL 60015

NOTICE OF SPECIAL MEETING OF DISCOVER STOCKHOLDERS

To Discover stockholders:

On February 19, 2024, Discover Financial Services, a Delaware corporation (“Discover”), entered into an Agreement and Plan of Merger with Capital One Financial Corporation, a Delaware corporation (“Capital One”) and Vega Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Capital One (“Merger Sub”) (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”). A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus. A summary of the merger agreement is included in the section of the accompanying joint proxy statement/prospectus entitled “The Merger Agreement.”

NOTICE IS HEREBY GIVEN that a special meeting of holders of Discover common stock (such holders, the “Discover stockholders,” and such meeting, the “Discover special meeting”) will be held on [    ], 2024 at [    ] [a.m.][p.m.], [Central Time] at 2500 Lake Cook Road, Riverwoods, Illinois 60015. We are pleased to notify you of, and invite you to, the Discover special meeting.

At the Discover special meeting, you will be asked to vote on the following matters:

 

•

A proposal to adopt the merger agreement (the “Discover merger proposal”);

 

•

A proposal to approve, on an advisory (non-binding) basis, the merger-related compensation payments that will or may be paid to named executive officers of Discover in connection with the transactions contemplated by the merger agreement (the “Discover compensation proposal”); and

 

•

A proposal to adjourn the Discover special meeting, if necessary or appropriate, to solicit additional proxies if, immediately prior to such adjournment, there are not sufficient votes to approve the Discover merger proposal or to ensure that any supplement or amendment to the accompanying joint proxy statement/prospectus is timely provided to Discover stockholders (the “Discover adjournment proposal”).

The Discover board of directors has fixed the close of business on [    ], 2024 as the record date for the Discover special meeting. Only holders of record of Discover common stock as of the close of business on the record date for the Discover special meeting are entitled to notice of, and to vote at, the Discover special meeting or any adjournment or postponement thereof.

Discover has determined that Discover stockholders are not entitled to appraisal or dissenters’ rights under the Delaware General Corporation Law (the “DGCL”) in connection with the transactions contemplated by the merger agreement.

Pursuant to Section 262 of the DGCL, notice is hereby given that, in connection with the transactions contemplated by the merger agreement and as further explained in the accompanying joint proxy statement/prospectus, holders of Discover’s Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C and Discover’s 6.125% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series D are entitled to appraisal rights under Section 262 of the DGCL, a copy of which is attached as Annex D to the accompanying joint proxy statement/prospectus.

The Discover board of directors unanimously recommends that Discover stockholders vote “FOR” the Discover merger proposal, “FOR” the Discover compensation proposal and “FOR” the Discover adjournment proposal.

If you have any questions or need assistance with voting, please contact Discover’s proxy solicitor, Innisfree M&A Incorporated, by calling toll-free at (877) 687-1873 or collect at (212) 750-5833.

Your vote is important. We cannot complete the transactions contemplated by the merger agreement unless Discover stockholders adopt the merger agreement. The affirmative vote of the holders of a majority of all the votes entitled to be cast on the merger agreement by the Discover stockholders is required to approve the Discover merger proposal.

Each copy of the joint proxy statement/prospectus mailed to Discover stockholders is accompanied by a form of proxy card with instructions for voting. The accompanying joint proxy statement/prospectus explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the Discover special meeting. Please carefully review the joint proxy statement/prospectus, including the annexes thereto and the documents incorporated by reference therein, in its entirety.

Whether or not you plan to attend the Discover special meeting, we urge you to please promptly complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope or authorize the individuals named on the accompanying proxy card to vote by calling the toll-free telephone number or by using the Internet as described in the instructions included with the accompanying proxy card. If your shares are held in the name of a bank, broker, trustee or other nominee, please follow the instructions on the voting instruction card furnished by such bank, broker, trustee or other nominee.

By Order of the Board of Directors

Hope D. Mehlman

Executive Vice President, Chief Legal Officer,

General Counsel and Secretary

Discover Financial Services

[     ], 2024

TABLE OF CONTENTS

 

		Page
QUESTIONS AND ANSWERS			1
SUMMARY			15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			27
RISK FACTORS			30
THE CAPITAL ONE SPECIAL MEETING			39
CAPITAL ONE PROPOSALS			44
THE DISCOVER SPECIAL MEETING			45
DISCOVER PROPOSALS			50
INFORMATION ABOUT THE COMPANIES			52
THE MERGERS			54
THE MERGER AGREEMENT			104
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS			124
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			127
DESCRIPTION OF CAPITAL ONE CAPITAL STOCK			143
DESCRIPTION OF NEW CAPITAL ONE PREFERRED STOCK			159
COMPARISON OF THE RIGHTS OF CAPITAL ONE STOCKHOLDERS AND DISCOVER STOCKHOLDERS			174
LEGAL MATTERS			185
EXPERTS			185
DEADLINES FOR SUBMITTING STOCKHOLDER PROPOSALS			186
HOUSEHOLDING OF PROXY MATERIALS			188
WHERE YOU CAN FIND MORE INFORMATION			189
PART II INFORMATION NOT REQUIRED IN PROSPECTUS			II-1
ANNEX A – AGREEMENT AND PLAN OF MERGER			A-1
ANNEX B – OPINION OF CENTERVIEW PARTNERS LLC			B-1
ANNEX C – OPINION OF PJT PARTNERS LP			C-1
ANNEX D – SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW			D-1

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference into this joint proxy statement/prospectus are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statement that does not describe historical or current facts is a forward-looking statement, including future financial and operating results, statements related to the expected timing of the completion of the mergers, the surviving entity’s plans, objectives, expectations and intentions, and other statements that are not historical facts.

Forward-looking statements may be identified by terminology such as “may,” “will,” “should,” “targets,” “scheduled,” “plans,” “intends,” “goal,” “anticipates,” “expects,” “believes,” “forecasts,” “outlook,” “estimates,” “potential,” or “continue” or negatives of such terms or other comparable terminology. Forward-looking statements are based on current expectations, estimates and projections about Capital One’s and Discover’s businesses, beliefs of Capital One’s and Discover’s managements and assumptions made by Capital One’s and Discover’s managements. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties and assumptions which are difficult to predict, change over time, and are often beyond the control of Capital One and Discover. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

While there is no assurance that any list of risks, uncertainties or risk factors is complete, below are certain factors, in addition to the factors relating to the mergers discussed in the section entitled “Risk Factors” beginning on page 30 and the risk factors previously discussed in Capital One’s and Discover’s reports filed with the SEC, which could cause actual results to differ materially from those contained or implied in the forward-looking statements:

 

•

the risk that the cost savings and any revenue synergies and other anticipated benefits from the mergers may not be fully realized or may take longer than anticipated to be realized;

 

•

disruption to Capital One’s business and to Discover’s business as a result of the announcement and pendency of the mergers;

 

•

the risk that the integration of Discover’s business and operations into Capital One’s, including into Capital One’s compliance management program, will be materially delayed or will be more costly or difficult than expected, or that Capital One is otherwise unable to successfully integrate Discover’s business into Capital One’s, including as a result of unexpected factors or events;

 

•

the possibility that the requisite regulatory, stockholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated (and the risk that requisite regulatory approvals may result in the imposition of conditions that could adversely affect Capital One following the closing or the expected benefits of the mergers);

 

•

the failure of the closing conditions in the merger agreement to be satisfied, or any unexpected delay in completing the mergers or the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

 

•

the possibility that the mergers may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

 

•

risks related to management and oversight of Capital One’s expanded business and operations following the mergers due to the increased size and complexity of Capital One’s business;

 

•

the possibility of increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the mergers or the size, scope and complexity of Capital One’s business operations following the mergers;

 

27

•

the outcome of any legal or regulatory proceedings that may be currently pending or later instituted against Capital One (before or after the mergers) or against Discover;

 

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the risk that expectations regarding the timing, completion and accounting and tax treatments of the mergers are not met;

 

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the risk that any announcements relating to the mergers could have adverse effects on the market price of the common stock of either Capital One or Discover;

 

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certain restrictions during the pendency of the mergers;

 

•

the diversion of management’s attention from ongoing business operations and opportunities;

 

•

the risk that revenues following the mergers may be lower than expected and/or the risk that certain expenses, such as the provision for credit losses, of Discover or the surviving entity may be greater than expected;

 

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Capital One’s and Discover’s success in executing their respective business plans and strategies and managing the risks involved in the foregoing;

 

•

the dilution caused by Capital One’s issuance of additional shares of its capital stock in connection with the mergers;

 

•

effects of the announcement, pendency or completion of the mergers on the ability of Capital One and Discover to retain customers and retain and hire key personnel and maintain relationships with their suppliers and other business partners, and on their operating results and businesses generally;

 

•

reputational risk and the reaction of each company’s customers, suppliers, employees or other business partners to the mergers;

 

•

risks related to the potential impact of general economic, political, industry and market factors on the parties or the mergers and other factors that may affect future results of Capital One and Discover;

 

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uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board;

 

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volatility and disruptions in global or national capital, currency, and credit markets;

 

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the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory reforms, as well as those involving the OCC, the Federal Reserve Board, the Federal Deposit Insurance Corporation (the “FDIC”), and the Consumer Financial Protection Bureau;

 

•

other changes in legislation, regulation, policies or administrative practices, whether by judicial, governmental or legislative action and other changes pertaining to banking, securities, taxation and financial accounting and reporting, environmental protection and insurance, and the ability to comply with such changes in a timely manner; and

 

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other factors that may affect the future results of Capital One and Discover.

For any forward-looking statements made in this joint proxy statement/prospectus or in any documents incorporated by reference into this joint proxy statement/prospectus, Capital One and Discover claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus or the dates of the documents incorporated by reference in this joint proxy statement/prospectus. Annualized, pro forma, projected and estimated numbers are used for illustrative purposes only, are not forecasts and may not reflect actual results. Except as required by applicable law, neither Capital One nor Discover undertakes to update these forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made.

 

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For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please see the reports that Capital One and Discover have filed with the SEC as described in the section entitled “Where You Can Find More Information” beginning on page 189.

Capital One and Discover expressly qualify in their entirety all forward-looking statements attributable to either of them or any person acting on their behalf by the cautionary statements contained in, referred to, or incorporated in this joint proxy statement/prospectus.

 

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RISK FACTORS

An investment by Discover’s stockholders in Capital One common stock as a result of the exchange of shares of Discover common stock for shares of Capital One common stock in the first merger involves certain risks. Similarly, a decision on the part of Capital One stockholders to approve the Capital One share issuance also involves risks for Capital One stockholders, who will continue to hold their shares of Capital One common stock after the mergers. Certain material risks and uncertainties connected with the merger agreement and transactions contemplated thereby, including the mergers and bank merger, and ownership of Capital One common stock, are discussed below. In addition, Capital One and Discover have discussed certain other material risks connected with the ownership of Capital One common stock and with Capital One’s business, and with the ownership of Discover common stock and Discover’s business, respectively, under the caption “Risk Factors” appearing in their Annual Reports on Form 10-K most recently filed with the SEC, and may include additional or updated disclosures of such material risks in their subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that each has filed with the SEC or may file with the SEC after the date of this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 189.

Capital One stockholders and Discover stockholders should carefully read and consider all of these risks and all other information contained in this joint proxy statement/prospectus, including the discussions of risk factors included in the documents incorporated by reference in this joint proxy statement/prospectus, in deciding whether to vote for approval of the various proposals for which they may be entitled to vote at the Capital One special meeting or the Discover special meeting. The risks described in this joint proxy statement/prospectus and in those documents incorporated by reference may adversely affect the value of Capital One common stock that you, as an existing Capital One stockholder, currently hold or that you, as an existing Discover stockholder, will hold upon consummation of the mergers, and could result in a significant decline in the value of Capital One common stock and cause Capital One stockholders and/or Discover stockholders to lose all or part of the value of their respective investments in Capital One common stock.

Risks Relating to the Consummation of the Mergers and Capital One Following the Mergers

Because the market price of Capital One common stock may fluctuate prior to the effective time, including as a result of Capital One’s and Discover’s financial performance prior to the effective time, stockholders cannot be certain of the market value of the merger consideration to be received by Discover stockholders.

In the first merger, each share of Discover common stock issued and outstanding immediately prior to the effective time (except for shares owned by Discover or Capital One, subject to certain exceptions set forth in the merger agreement), will be converted into the right to receive 1.0192 shares of Capital One common stock. This exchange ratio is fixed and will not be adjusted for changes in the market price of either Capital One common stock or Discover common stock. Changes in the price of Capital One common stock between now and the effective time will affect the value of the merger consideration that Discover stockholders will receive in the first merger. Neither Capital One nor Discover is permitted to terminate the merger agreement as a result of any increase or decrease in the market price of Capital One common stock or Discover common stock.

Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Capital One’s and Discover’s businesses, operations and prospects, the performance of peer companies and other financial companies, volatility in the prices of securities in global financial markets, including market prices of Capital One, Discover and other banking companies, and regulatory considerations and tax laws, many of which are beyond Capital One’s and Discover’s control. Therefore, at the time of the Capital One special meeting and the Discover special meeting, Capital One stockholders and Discover stockholders will not know the market value of the merger consideration that Discover stockholders will receive at the effective time. You should obtain current market quotations for shares of Capital One common stock (NYSE: COF) and for shares of Discover common stock (NYSE: DFS).

 

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The market price of Capital One common stock after the mergers may be affected by factors different from those currently affecting the shares of Capital One common stock or Discover common stock.

As a result of the first merger, Discover stockholders will become Capital One stockholders. Capital One’s business differs from that of Discover and certain adjustments may be made to Capital One’s business as a result of the mergers. Accordingly, the results of operations of Capital One and the market price of Capital One common stock after the completion of the mergers may be affected by factors different from those currently affecting the independent results of operations of each of Capital One and Discover. For a discussion of the businesses of Capital One and Discover and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this joint proxy statement/prospectus and listed in the section entitled “Where You Can Find More Information” beginning on page 189.

Capital One and Discover are expected to incur substantial costs related to the mergers and integration, and these costs may be greater than anticipated due to unexpected events.

Capital One and Discover have incurred and expect to incur a number of significant non-recurring costs associated with the mergers. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs and other related costs. Some of these costs are payable by either Capital One or Discover regardless of whether the mergers are completed.

In addition, Capital One will incur integration costs following the completion of the mergers as Capital One and Discover integrate their businesses, including facilities and systems consolidation costs and employment-related costs. Discover may also incur additional costs to maintain employee morale and to retain key employees. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits. While Capital One and Discover have assumed that a certain level of costs will be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs may result in Capital One taking charges, which may be substantial, against earnings following the completion of the mergers, and the amount and timing of such charges are uncertain at present. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time.

Integrating Discover’s business into Capital One may be more difficult, costly or time-consuming than expected, and Capital One may fail to realize the anticipated benefits of the mergers.

The success of the mergers will depend, in part, on the ability to realize the anticipated revenue synergies and cost savings from combining the businesses of Capital One and Discover. To realize the anticipated benefits from the mergers, including revenue synergies and cost savings, Capital One must successfully integrate Discover into its existing businesses and, in particular, integrate Discover into its risk management framework, compliance systems and corporate culture, in a manner that permits the anticipated revenue synergies and cost savings to be realized and that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. If Capital One is not able to successfully achieve these objectives for any reason, including changes in laws or regulations that prevent Capital One from realizing revenue synergies, the anticipated benefits of the mergers may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the mergers could be less than anticipated, and integration may result in additional and unforeseen expenses.

An inability to realize the full extent of the anticipated benefits of the mergers and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have

 

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an adverse effect upon the revenues, levels of expenses and operating results of Capital One following the completion of the mergers, which may adversely affect the value of the common stock of Capital One following the completion of the mergers.

Capital One and Discover have operated and, until the effective time, must continue to operate, independently. It is possible that the integration process could result in the loss of key Discover employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the mergers, including revenue synergies and cost savings. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on Capital One and Discover during this transition period and on Capital One for an undetermined period after completion of the mergers.

The future results of Capital One following the completion of the mergers may suffer if Capital One does not effectively manage its expanded operations.

Following the mergers, the size and scope of the business of Capital One will increase significantly beyond the current size and scope of either Capital One’s or Discover’s business. Capital One’s future success following the mergers will depend, in part, upon its ability to manage its expanded businesses, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that Capital One will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the mergers.

In addition, following the mergers, Capital One may be subject to increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the transaction or the size, scope and complexity of its business operations, which may have an adverse effect on the business, operations or stock price of Capital One.

Capital One may be unable to retain Discover personnel successfully after the completion of the mergers.

The success of the mergers will depend in part on Capital One’s ability to retain the talent and dedication of key employees currently employed by Discover. It is possible that these employees may decide not to remain with Discover while the mergers are pending or with Capital One after the completion of the mergers. If Capital One and Discover are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Capital One and Discover could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the completion of the mergers, if key employees terminate their employment, Capital One’s business activities may be adversely affected, and management’s attention may be diverted to successfully hiring suitable replacements, all of which may cause Capital One’s business to suffer. Discover also may not be able to locate or retain suitable replacements for any key employees who leave its company.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on Capital One following the mergers.

Before the mergers and the bank merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve Board, the OCC and other regulatory authorities. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party and the factors described in the section entitled “The Mergers—Regulatory Approvals” beginning on page 95. These approvals could be delayed or not obtained at all, including due to any or all of the following: an adverse development in either party’s regulatory standing, or any other factors considered by regulators in

 

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granting such approvals; governmental, political or community group inquiries, investigations or opposition; changes in legislation; or adverse developments in the political environment.

Even if those approvals are granted, they may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of Capital One’s business following the mergers or require changes to the terms of the transactions contemplated by the merger agreement. Any such terms and conditions, limitations, obligations or restrictions could delay the completion of the transactions contemplated by the merger agreement, result in additional material costs on or materially limit the revenues of Capital One following the mergers or otherwise reduce the anticipated benefits of the mergers or even result in the abandonment of the mergers. Additionally, the completion of the first merger is conditioned on the absence of certain orders, injunctions or decrees by any governmental entity of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.

Despite the parties’ commitments to use their reasonable best efforts to respond to any request for information and resolve any objection that may be asserted by any governmental entity with respect to the merger agreement, neither Capital One nor Discover nor any of their respective subsidiaries is required under the terms of the merger agreement to take any action, or commit to take any action, or agree to any condition or restriction in connection with obtaining permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the surviving entity and its subsidiaries, taken as a whole, after giving effect to the mergers. See the section entitled “The Mergers—Regulatory Approvals” beginning on page 95.

The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus is preliminary and the actual value of the consideration to be issued in the mergers as well as the actual financial condition and results of operations of Capital One after the mergers may differ materially.

The unaudited pro forma condensed combined financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what Capital One’s actual financial condition or results of operations would have been had the mergers been completed on the dates indicated. The unaudited pro forma condensed combined financial information reflects adjustments, which are based upon preliminary estimates, to record the Discover identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The fair value estimates reflected in this joint proxy statement/prospectus are preliminary, and the final amounts will be based upon the actual consideration paid and the fair value of the assets and liabilities of Discover as of the closing date. Accordingly, (i) the actual value of the consideration paid and the fair value of such assets and liabilities may vary significantly from the value used in preparing the unaudited pro forma combined consolidated financial information in this joint proxy statement/prospectus, and (ii) the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus.

The prospective financial information is based on various assumptions and may not be realized.

While presented with numeric specificity, the Capital One and Discover prospective financial information provided in this joint proxy statement/prospectus is based on numerous variables and assumptions (including, but not limited to, those related to the banking, credit card and payment services industries, economic, market and financial conditions and additional matters specific to Capital One’s or Discover’s businesses, as applicable) that are inherently subjective and uncertain and are outside the control of Capital One and Discover. As a result, actual results may differ materially from the prospective financial information. Important factors that may affect actual results and cause the prospective financial information to not be achieved include, but are not limited to, risks and uncertainties relating to Capital One’s and Discover’s businesses, as applicable (including each company’s ability to achieve strategic goals, objectives and targets over applicable periods), liabilities that may be greater than anticipated, industry performance, general business and economic conditions. For more information, see the section entitled “The Mergers—Certain Unaudited Prospective Financial Information” beginning on page 82.

 

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The opinion delivered by Centerview to the Capital One board of directors and the opinion delivered by PJT Partners to the Discover board of directors, respectively, prior to the entry into the merger agreement will not reflect changes in circumstances that may have occurred since the date of the opinions.

The written opinion of Centerview, Capital One’s financial advisor, to the Capital One board of directors, was delivered on and dated February 19, 2024, and the written opinion of PJT Partners, Discover’s financial advisor, to the Discover board of directors was delivered on and dated February 19, 2024. Changes in the operations and prospects of Capital One or Discover, general market and economic conditions and other factors which may be beyond the control of Capital One and Discover and the market prices of Capital One and Discover, may have altered the value of Capital One or Discover or the prices of shares of Capital One common stock and Discover common stock as of the date of this joint proxy statement/prospectus, or may alter such values and prices by the effective time. The opinions do not speak as of the date of this joint proxy statement/prospectus or as of any other date subsequent to the dates of those opinions.

Discover’s directors and executive officers may have interests in the mergers that may differ from, or are in addition to, the interests of Discover stockholders generally.

Discover stockholders should be aware that Discover’s directors and executive officers may have interests in the mergers and have arrangements that are different from, or in addition to, those of Discover stockholders. These interests and arrangements may create potential conflicts of interest. The Discover board of directors was aware of these respective interests and considered these interests, among other matters, when making their decisions to approve the merger agreement, and in recommending that Discover stockholders vote to approve the Discover merger proposal, the Discover compensation proposal, and the Discover adjournment proposal. For a more complete description of the interests of Discover’s directors and executive officers in the mergers, see the section entitled “The Mergers—Interests of Discover’s Directors and Executive Officers in the Mergers” beginning on page 87.

If the requisite approval of Capital One stockholders or Discover stockholders is not obtained, or other conditions to the closing of the first merger are not met, the merger agreement may be terminated in accordance with its terms and the mergers may not be completed.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the first merger. Those conditions include: (i) approval of the Capital One share issuance proposal by the requisite Capital One vote, and approval of the Discover merger proposal by the requisite Discover vote; (ii) the shares of Capital One common stock issuable pursuant to the merger agreement having been authorized for listing on the NYSE, subject to official notice of issuance; (iii) all requisite regulatory approvals having been obtained and remaining in full force and effect and all statutory waiting periods in respect thereof having expired or been terminated, and no such requisite regulatory approval having resulted in the imposition of any materially burdensome regulatory condition; (iv) effectiveness of the registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part; and (v) the absence of any order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the mergers, the bank merger or any of the other transactions contemplated by the merger agreement, and the absence of the enactment of any law, statute, rule, regulation, order, injunction or decree by any governmental entity which prohibits or makes illegal consummation of the mergers, the bank merger or any of the other transactions contemplated by the merger agreement. Each party’s obligation to complete the first merger is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the merger agreement and (c) the receipt by each party of an opinion from its counsel to the effect that the mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. See the section entitled “The Merger Agreement—Conditions to Complete the First Merger” beginning on page 119.

 

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These conditions to the closing of the first merger may not be fulfilled in a timely manner or at all, and accordingly, the mergers may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the requisite Capital One stockholder approval and the requisite Discover stockholder approval, or Capital One or Discover may elect to terminate the merger agreement in certain other circumstances (as further described in the section entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 120).

Failure to complete the mergers could negatively impact Capital One or Discover.

The merger agreement is subject to a number of conditions that must be fulfilled in order to complete the mergers. Those conditions are described in the section entitled “The Merger Agreement—Conditions to Complete the First Merger” beginning on page 119. These conditions may not be fulfilled in a timely manner or at all, and, accordingly, the mergers may be delayed or may not be completed. In addition, if the merger is not completed by February 19, 2025 (which date may be automatically extended to May 19, 2025 in certain circumstances for purposes of obtaining requisite regulatory approvals (as further described in the section entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 120)), either Capital One or Discover may choose not to proceed with the merger, and the parties can mutually decide to terminate the merger agreement at any time before or after the requisite Capital One stockholder approval or the requisite Discover stockholder approval.

If the mergers are not completed for any reason, there may be various adverse consequences and Capital One and/or Discover may experience negative reactions from the financial markets and from their respective customers and employees. For example, Capital One’s or Discover’s businesses may have been affected adversely by the failure to pursue other beneficial opportunities due to the focus of management on the mergers, without realizing any of the anticipated benefits of completing the mergers. Additionally, if the merger agreement is terminated, the market price of Capital One common stock or Discover common stock could decline to the extent that the current market prices reflect a market assumption that the mergers will be completed. If the merger agreement is terminated under certain circumstances involving alternative acquisition proposals or changes in the Capital One board recommendation or the Discover board recommendation, either Capital One or Discover may be required to pay a termination fee of $1.38 billion to the other party. See the section entitled “The Merger Agreement—Termination Fee” beginning on page 121.

Further, Capital One and Discover have incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement and those expenses must be paid even if the mergers are not completed and neither party realizes the expected benefits of the mergers.

In connection with the mergers, Capital One will assume Discover’s outstanding debt obligations, and Capital One’s level of indebtedness following the completion of the mergers could adversely affect Capital One’s ability to raise additional capital and to meet its obligations under Capital One’s existing indebtedness following the mergers.

In connection with the mergers, Capital One will assume Discover’s outstanding indebtedness. Discover’s existing debt, together with any future incurrence of additional indebtedness, could have important consequences for the surviving entity’s creditors and the surviving entity’s stockholders. For example, it could limit the surviving entity’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes and require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the surviving entity’s indebtedness, thereby reducing the surviving entity’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.

 

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Capital One stockholders and Discover stockholders will have a reduced ownership and voting interest in Capital One after the mergers and will exercise less influence over management.

Capital One stockholders and Discover stockholders currently have the right to vote in the election of the board of directors and on other matters affecting Capital One and Discover, respectively. In connection with the mergers, each Discover stockholder who receives shares of Capital One common stock will become a Capital One stockholder, with a percentage ownership of Capital One that is smaller than the holder’s current percentage ownership of Discover and similarly due to the issuance of shares of Capital One common stock to Discover stockholders in connection with the mergers, each Capital One stockholder’s percentage ownership will be smaller than the holder’s current percentage ownership of Capital One. Based on the number of shares of Capital One and Discover common stock outstanding as of the close of business on the respective record dates, and based on the number of shares of Capital One common stock expected to be issued in the mergers, the former Discover stockholders, as a group, are estimated to own approximately [  ]% of the fully diluted shares of Capital One immediately after the mergers and current Capital One stockholders as a group are estimated to own approximately [  ]% of the fully diluted shares of Capital One immediately after the mergers. Because of this, Discover stockholders may have less influence on the management and policies of Capital One than they now have on the management and policies of Discover, and Capital One stockholders may have less influence on the management and policies of Capital One following the mergers than they now have on the management and policies of Capital One.

While the mergers are pending, Capital One and Discover will be subject to business uncertainties and contractual restrictions that could adversely affect each company’s respective business and operations.

Uncertainty about the effect of the transaction on employees, customers, suppliers and other persons with whom Capital One or Discover have a business relationship may have an adverse effect on Capital One’s and Discover’s respective businesses, operations and stock prices. Existing customers, suppliers and other business partners of Capital One and Discover could decide to no longer do business with Capital One, Discover or the surviving entity, reducing the anticipated benefits of the mergers. Capital One and Discover are also subject to certain restrictions on the conduct of their respective businesses while the mergers are pending. As a result, certain other projects may be delayed or abandoned and business decisions could be deferred. In addition, uncertainty may impair Discover’s ability to attract, retain and motivate key personnel until the mergers are completed. Employee retention at Discover may be challenging before completion of the mergers, as certain employees may experience uncertainty about their future roles with Capital One following the mergers, and these retention challenges will require Discover to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Discover or Capital One following the mergers, the benefits of the mergers could be materially diminished.

The merger agreement limits Capital One’s and Discover’s respective abilities to pursue alternatives to the mergers and may discourage other companies from trying to acquire Capital One or Discover.

The merger agreement contains “no shop” covenants that restrict each of Capital One’s and Discover’s ability to, directly or indirectly, initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to, engage or participate in any negotiations with any person concerning, provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to, any acquisition proposal, subject to certain exceptions, or, unless the merger agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (whether written or oral, binding or nonbinding) in connection with or relating to any acquisition proposal.

The merger agreement further provides that, during the twelve (12)-month period following the termination of the merger agreement under specified circumstances, including the entry into a definitive agreement or

 

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consummation of a transaction with respect to an alternative acquisition proposal, Capital One or Discover may be required to pay to the other party a cash termination fee equal to $1.38 billion. See the section entitled “The Merger Agreement—Termination Fee” beginning on page 121.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of Capital One or Discover from considering or proposing that acquisition.

The shares of Capital One common stock to be received by Discover stockholders as a result of the first merger will have different rights from the shares of Discover common stock.

In the first merger, Discover stockholders will become Capital One stockholders and, although their rights as stockholders will continue to be governed by Delaware law, they will also be governed by the organizational documents of Capital One, which are different from Discover’s. The rights associated with Capital One common stock are different from the rights associated with Discover common stock. See the section entitled “Comparison of the Rights of Capital One Stockholders and Discover Stockholders” beginning on page 174 for a discussion of the different rights associated with Capital One common stock.

Capital One stockholders and Discover stockholders will not have dissenters’ rights or appraisal rights in connection with the mergers or other matters to be voted on at the Capital One special meeting and Discover special meeting, respectively.

Appraisal rights (also known as dissenters’ rights) are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. Under Section 262 of the DGCL, Capital One stockholders and Discover stockholders are not entitled to appraisal or dissenters’ rights in connection with the mergers or the issuance of Capital One common stock in connection with the mergers. See the section entitled “The Mergers—Appraisal or Dissenters’ Rights in Connection with the Mergers” beginning on page 98.

Issuance of shares of Capital One common stock in connection with the mergers may adversely affect the market price of Capital One common stock.

In connection with the payment of the merger consideration, Capital One expects to issue approximately [    ] million shares of Capital One common stock to Discover stockholders. The issuance of these new shares of Capital One common stock may result in fluctuations in the market price of Capital One common stock, including a stock price decrease.

Stockholder litigation related to the mergers could prevent or delay the completion of the mergers, result in the payment of damages or otherwise negatively impact the business and operations of Capital One and Discover.

Stockholders of Capital One and/or Discover may file lawsuits against Capital One, Discover and/or the directors or officers of either company in connection with the mergers. One of the conditions to the closing is that no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the mergers, the bank merger or any of the other transactions contemplated by the merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting Capital One or Discover defendants from completing the mergers, the bank merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the consummation of the mergers and could result in significant costs to Capital One and/or Discover, including any cost associated with the indemnification of directors and officers of each company. Capital One and Discover may incur costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the mergers, the bank merger or any other transactions contemplated by the merger agreement. Such litigation

 

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could have an adverse effect on the financial condition and results of operations of Capital One and Discover and could prevent or delay the completion of the mergers. There has not been any stockholder litigation related to the mergers against Capital One, Discover or the directors or officers of either company, but such litigation could be instigated.

Risks Relating to Capital One’s Business

You should read and consider risk factors specific to Capital One’s business that will also affect Capital One after the mergers. These risks are described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Capital One’s Annual Report on Form 10-K for the year ended December 31, 2023 and in any updates to those risk factors set forth in Capital One’s Quarterly Reports on Form 10-Q and in other documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 189 for the location of information incorporated by reference into this joint proxy statement/prospectus.

Risks Relating to Discover’s Business

You should read and consider risk factors specific to Discover’s business that will also affect Capital One after the mergers. These risks are described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Discover’s Annual Report on Form 10-K for the year ended December 31, 2023 and in any updates to those risk factors set forth in Discover’s Quarterly Reports on Form 10-Q and in other documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 189 for the location of information incorporated by reference into this joint proxy statement/prospectus.

 

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THE CAPITAL ONE SPECIAL MEETING

This section contains information for Capital One stockholders about the special meeting that Capital One has called to allow Capital One stockholders to consider and vote on the Capital One share issuance proposal and the Capital One adjournment proposal. This joint proxy statement/prospectus is accompanied by a notice of the Capital One special meeting, and a form of proxy card that the Capital One board of directors is soliciting for use by Capital One stockholders at the special meeting and at any adjournments or postponements of the special meeting.

Date, Time and Place of the Meeting

The Capital One special meeting will be held at Capital One’s campus at 1600 Capital One Drive, McLean, Virginia 22102, on [    ], 2024 at [    ], Eastern Time.

Only holders of record of Capital One common stock as of the close of business on the record date for the Capital One special meeting are entitled to notice of, and to vote at, the Capital One special meeting or any adjournment or postponement thereof.

Matters to Be Considered

At the Capital One special meeting, Capital One stockholders will be asked to consider and vote on the following proposals:

 

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the Capital One share issuance proposal; and

 

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the Capital One adjournment proposal.

Recommendation of the Capital One Board of Directors

The Capital One board of directors unanimously recommends that you vote “FOR” the Capital One share issuance proposal and “FOR” the Capital One adjournment proposal. See the section entitled “The Mergers—Capital One’s Reasons for the Mergers; Recommendation of the Capital One Board of Directors” beginning on page 60 for a more detailed discussion of the Capital One board of directors’ recommendation.

Record Date and Quorum

The Capital One board of directors has fixed the close of business on [    ], 2024 (the “Capital One record date”) as the record date for determination of Capital One stockholders entitled to notice of and to vote at the Capital One special meeting. On the Capital One record date for the Capital One special meeting, there were [   ] shares of Capital One common stock outstanding.

Holders of a majority of the voting power of shares of Capital One common stock outstanding on the Capital One record date must be present, either in person or by proxy, to constitute a quorum at the Capital One special meeting. If you fail to submit a proxy or to vote in person at the Capital One special meeting, your shares of Capital One common stock will not be counted towards a quorum. Abstentions are considered present for purposes of establishing a quorum.

At the Capital One special meeting, each share of Capital One common stock is entitled to one (1) vote on all matters properly submitted to Capital One stockholders.

As of the Capital One record date, Capital One directors and executive officers and their affiliates owned and were entitled to vote approximately [   ] shares of Capital One common stock, representing less than [  ]% of the outstanding shares of Capital One common stock. We currently expect that Capital One’s directors and executive officers will vote their shares in favor of the Capital One share issuance proposal and the Capital One adjournment proposal, although none of them has entered into any agreements obligating them to do so.

 

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Broker Non-Votes

A broker non-vote occurs when a bank, broker, trustee or other nominee is not permitted to vote on a “non-routine” matter without instructions from the beneficial owner of the shares and the beneficial owner fails to provide the bank, broker, trustee or other nominee with such instructions. Broker non-votes only count toward a quorum if at least one proposal is presented with respect to which the bank, broker, trustee or other nominee has discretionary authority. It is expected that all proposals to be voted on at the Capital One special meeting will be “non-routine” matters, and, as such, broker non-votes, if any, will not be counted as present and entitled to vote for purposes of determining a quorum at the Capital One special meeting. If your bank, broker, trustee or other nominee holds your shares of Capital One common stock in “street name,” such entity will vote your shares of Capital One common stock only if you provide instructions on how to vote by complying with the instructions provided to you by your bank, broker, trustee or other nominee with this joint proxy statement/prospectus. Please check the voting instruction form used by your bank, broker, trustee or other nominee.

Vote Required; Treatment of Abstentions, Broker Non-Votes and Failure to Vote

Capital One share issuance proposal:

Vote required: Approval of the Capital One share issuance proposal requires the affirmative vote of a majority of the votes cast by Capital One stockholders at the special meeting. Approval of the Capital One share issuance proposal is a condition to the completion of the first merger.

Effect of abstentions, broker non-votes, and failure to vote: If you are present at the Capital One special meeting and abstain from voting, or respond by proxy with an “ABSTAIN,” it will have no effect on such proposal. If you are not present at the Capital One special meeting and do not respond by proxy or do not provide your bank, broker, trustee or other nominee with instructions, as applicable, it will have no effect on such proposal.

Capital One adjournment proposal:

Vote required: Whether or not a quorum will be present at the meeting, approval of the Capital One adjournment proposal requires the affirmative vote of the majority of the outstanding shares of Capital One common stock represented in person or by proxy at the Capital One special meeting. Approval of the Capital One adjournment proposal is not a condition to the completion of the first merger.

Effect of abstentions, broker non-votes and failure to vote: If you are present at the Capital One special meeting and abstain from voting, or respond by proxy with an “ABSTAIN,” it will have the same effect as a vote “AGAINST” such proposal. If you are not present at the Capital One special meeting and do not respond by proxy or do not provide your bank, broker, trustee or other nominee with instructions, as applicable, it will have no effect on the vote count for such proposal.

Attending the Special Meeting

Due to space limitations, attendance is limited to stockholders and persons holding valid legal proxies from those stockholders. Admission to the meeting is on a first-come, first-served basis. Registration will begin at [ ] a.m., Eastern Time. Valid government-issued picture identification and proof of Capital One stock ownership as of the Capital One record date must be presented to attend the meeting. If you hold Capital One common stock through a bank, broker, trustee or other nominee, you must bring a copy of a statement reflecting your stock ownership as of the Capital One record date, and if you wish to vote in person, you must also bring a legal proxy from your bank, broker, trustee or other nominee. See the section entitled “—Shares Held in Street Name” below for further information. If you hold your shares through a bank, broker, trustee or other nominee and you do not want to attend the Discover special meeting, please contact the respective entity for instructions on how to vote your shares of Discover common stock at the Discover special meeting. Cameras, recording

 

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devices, and other electronic devices are not permitted. If you require special assistance at the meeting, please contact the Corporate Secretary at 1600 Capital One Drive, McLean, VA 22102.

Proxies

A Capital One stockholder may vote by proxy or in person at the Capital One special meeting. If you hold your shares of Capital One common stock in your name as a holder of record, to submit a proxy, you, as a Capital One stockholder, may use one of the following methods:

 

•

By telephone: by calling the toll-free number indicated on the accompanying proxy card and following the recorded instructions.

 

•

Through the Internet: by visiting the website indicated on the accompanying proxy card and following the instructions.

 

•

By mail: by completing and returning the accompanying proxy card in the enclosed postage-paid envelope. The envelope requires no additional postage if mailed in the United States.

Capital One requests that Capital One stockholders vote by telephone, over the Internet or by completing and signing the accompanying proxy card and returning it to Capital One as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed, the shares of Capital One common stock represented by it will be voted at the Capital One special meeting in accordance with the instructions contained on the proxy card.

If a holder’s shares are held in “street name” by a bank, broker, trustee or other nominee, the holder should check the voting form used by that firm to determine whether the holder may vote by telephone or the Internet.

Every vote is important. Accordingly, you should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not you plan to attend the Capital One special meeting in person. Sending in your proxy card or voting by telephone or on the Internet will not prevent you from voting your shares personally at the meeting because you may revoke your proxy at any time before it is voted.

Shares Held in Street Name

If your shares are held in “street name” through a bank, broker, trustee or other nominee, you must instruct the bank, broker trustee or other nominee on how to vote your shares. Your bank, broker, trustee or other nominee will vote your shares only if you provide specific instructions on how to vote by following the instructions provided to you by your bank, broker, trustee or other nominee. Please check the voting instruction form used by your bank, broker, trustee or other nominee.

You may not vote shares held in street name by returning a proxy card directly to Capital One or by voting in person at the Capital One special meeting unless you provide a “legal proxy” giving you the right to vote the shares, which you must obtain from your bank, broker, trustee or other nominee. If you choose to vote your shares in person at the Capital One special meeting, you must present a valid government-issued picture identification and a copy of a brokerage statement reflecting your stock ownership as of the Capital One record date.

Further, banks, brokers, trustees or other nominees who hold shares of Capital One common stock on behalf of their customers may not give a proxy to Capital One to vote those shares with respect to any of the proposals without specific instructions from their customers, as banks, brokers, trustees and other nominees do not have discretionary voting power on the proposals that will be voted upon at the Capital One special meeting.

 

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Revocability of Proxies

If you directly hold shares of Capital One common stock in your name as a record holder, you can change your vote at any time before your proxy is voted at your meeting. You can do this by:

 

•

submitting a written statement that you would like to revoke your proxy to the corporate secretary of Capital One;

 

•

signing and returning a proxy card with a later date;

 

•

attending the special meeting in person and voting at the special meeting; or

 

•

voting by telephone or the Internet at a later time, before 11:59 p.m., Eastern Time, on the day before the Capital One special meeting.

If you are a beneficial owner and your shares are held by a bank, broker, trustee or other nominee, you may change your vote by:

 

•

contacting your bank, broker, trustee or other nominee; or

 

•

attending the special meeting and voting your shares in person. Please contact your bank, broker, trustee or other nominee for further instructions.

Attendance at the Capital One special meeting will not in and of itself constitute revocation of a proxy. A revocation or later-dated proxy received by Capital One after the vote will not affect the vote. Capital One’s corporate secretary’s mailing address is: Corporate Secretary, Capital One Financial Corporation, 1600 Capital One Drive, McLean, Virginia 22102. If the Capital One special meeting is postponed or adjourned, it will not affect the ability of Capital One stockholders of record as of the Capital One record date to exercise their voting rights or to revoke any previously granted proxy using the methods described above.

Delivery of Proxy Materials

As permitted by applicable law, only one (1) copy of this joint proxy statement/prospectus is being delivered to Capital One stockholders residing at the same address, unless such Capital One stockholders have notified Capital One of their desire to receive multiple copies of the joint proxy statement/prospectus.

Capital One will promptly deliver, upon oral or written request, a separate copy of the joint proxy statement/prospectus to any Capital One stockholder residing at an address to which only one (1) copy of such document was mailed. Requests for additional copies should be directed to Investor Relations, by calling at (703) 720-2455, or via email to investorrelations@capitalone.com, or Capital One’s proxy solicitor, Morrow Sodali, by calling (800) 662-5200 for stockholders or (203) 658-9400 for banks and brokers or by emailing COF@investor.morrowsodali.com.

Solicitation of Proxies

Capital One and Discover will share equally the expenses incurred in connection with the printing and mailing of this joint proxy statement/prospectus. To assist in the solicitation of proxies, Capital One has retained Morrow Sodali, for a fee of $65,000 plus reimbursement of out-of-pocket expenses for its services. Capital One and its proxy solicitor may also request banks, brokers, trustees and other intermediaries holding shares of Capital One common stock beneficially owned by others to send this joint proxy statement/prospectus to, and obtain proxies from, the beneficial owners and may reimburse such record holders for their reasonable out-of-pocket expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone and other electronic means, advertisements and personal solicitation by the directors, officers or employees of Capital One. No additional compensation will be paid to Capital One’s directors, officers or employees for solicitation.

 

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401(k) Voting

If you own shares of Capital One through the Capital One Associate Savings Plan (Capital One Stock Fund) or Hibernia Corporation Supplemental Stock Plan, you may vote the number of shares equivalent to your interest in the Capital One Stock Fund as credited to your account on the Capital One record date. You will receive instructions on how to vote your shares via email from Broadridge. The trustee of the Capital One Associate Savings Plan and the Hibernia Corporation Supplemental Stock Plan will vote your shares in accordance with your duly executed instructions if they are received by 11:59 p.m., Eastern Time, on [    ], 2024. If you do not send instructions, the trustee will not vote the share equivalents credited to your account.

Other Matters to Come Before the Capital One Special Meeting

Capital One management knows of no other business to be presented at the Capital One special meeting, but if any other matters are properly presented to the meeting or any adjournments thereof, the persons named in the proxies will vote upon them in accordance with the Capital One board of directors’ recommendations.

Assistance

If you need assistance in completing your proxy card, have questions regarding Capital One’s special meeting or would like additional copies of this joint proxy statement/prospectus, please contact Capital One Investor Relations, by calling at (703) 720-2455, or via email to investorrelations@capitalone.com, or Capital One’s proxy solicitor, Morrow Sodali, by calling (800) 662-5200 for stockholders or (203) 658-9400 for banks and brokers or by emailing COF@investor.morrowsodali.com.

 

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CAPITAL ONE PROPOSALS

PROPOSAL 1: CAPITAL ONE SHARE ISSUANCE PROPOSAL

Capital One is asking Capital One stockholders to approve the issuance of shares of Capital One common stock in the first merger as merger consideration to Discover stockholders pursuant to the merger agreement.

Pursuant to the merger agreement, Capital One will issue a total of approximately [    ] shares of Capital One common stock in connection with the consummation of the first merger. Under the NYSE rules, stockholder approval is required prior to the issuance of shares of common stock in any transaction or series of related transactions if the number of shares of common stock to be issued is equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the shares of common stock pursuant to the transaction. If the first merger is completed, the number of shares of Capital One common stock issued in connection with the first merger will exceed 20% of the Capital One common stock outstanding before such issuance. In this proposal, Capital One is asking Capital One stockholders to authorize the issuance of Capital One common stock in connection with the first merger.

The approval of the Capital One share issuance proposal is a condition to the completion of the first merger.

The Capital One board of directors unanimously recommends a vote “FOR” the Capital One share issuance proposal.

PROPOSAL 2: CAPITAL ONE ADJOURNMENT PROPOSAL

The Capital One special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if, immediately prior to such adjournment, there are insufficient votes to approve the Capital One share issuance proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Capital One stockholders.

If, at the Capital One special meeting, the number of shares of Capital One common stock present in person or represented by proxy and voting in favor of the Capital One share issuance proposal is insufficient to approve the Capital One share issuance proposal, Capital One intends to move to adjourn the Capital One special meeting in order to enable the Capital One board of directors to solicit additional proxies for approval of the Capital One share issuance proposal. In that event, Capital One will ask Capital One stockholders to vote upon the Capital One adjournment proposal, but not the Capital One share issuance proposal.

In this proposal, Capital One is asking Capital One stockholders to authorize the holder of any proxy solicited by the Capital One board of directors, on a discretionary basis, to vote in favor of adjourning the Capital One special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Capital One stockholders who have previously voted. Pursuant to the Capital One bylaws, the Capital One special meeting may be adjourned without further notice being given. However, pursuant to the DGCL, if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting must be given to each stockholder of record entitled to vote at the meeting.

The approval of the Capital One adjournment proposal by Capital One stockholders is not a condition to the completion of the first merger.

The Capital One board of directors unanimously recommends a vote “FOR” the Capital One adjournment proposal.

 

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THE DISCOVER SPECIAL MEETING

This section contains information for Discover stockholders about the special meeting that Discover has called to allow Discover stockholders to consider and vote on the Discover merger proposal, the Discover compensation proposal and the Discover adjournment proposal. This joint proxy statement/prospectus is accompanied by a notice of the Discover special meeting, and a form of proxy card that the Discover board of directors is soliciting for use by Discover stockholders at the special meeting and at any adjournments or postponements of the special meeting.

Date, Time and Place of the Meeting

The Discover special meeting will be held on [     ], 2024 at 2500 Lake Cook Road, Riverwoods, Illinois, 60015 at [     ] [a.m.][p.m.], [Central Time].

Only holders of record of Discover common stock as of the close of business on the record date for the Discover special meeting are entitled to notice of, and to vote at, the Discover special meeting or any adjournment or postponement thereof.

Matters to Be Considered

At the Discover special meeting, Discover stockholders will be asked to consider and vote on the following proposals:

 

•

the Discover merger proposal;

 

•

the Discover compensation proposal; and

 

•

the Discover adjournment proposal.

Recommendation of the Discover Board of Directors

The Discover board of directors unanimously recommends that Discover stockholders vote “FOR” the Discover merger proposal, “FOR” the Discover compensation proposal and “FOR” the Discover adjournment proposal. See the section entitled “The Mergers—Discover’s Reasons for the Mergers; Recommendation of the Discover Board of Directors” beginning on page 63 for a more detailed discussion of the Discover board of directors’ recommendation.

Record Date and Quorum

The Discover board of directors has fixed the close of business on [     ], 2024 (the “Discover record date”) as the record date for the determination of Discover stockholders entitled to notice of and to vote at the Discover special meeting. As of the Discover record date, there were [     ] shares of Discover common stock outstanding.

Holders of a majority of the total number of outstanding shares of Discover common stock entitled to vote at the Discover special meeting must be present, either in attendance at the Discover special meeting or by proxy, to constitute a quorum at the Discover special meeting. If you fail to submit a proxy prior to the special meeting, or to vote at the Discover special meeting, your shares of Discover common stock will not be counted towards a quorum. Abstentions are considered present for the purpose of establishing a quorum.

Under the Discover bylaws, whether or not a quorum is present at the Discover special meeting, the chair of the Discover board of directors or holders of a majority of the voting power of the shares entitled to vote thereon may adjourn the Discover special meeting.

 

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At the Discover special meeting, each share of Discover common stock is entitled to cast one (1) vote for each share of Discover common stock entitled to vote at the Discover special meeting held by such stockholder on all matters properly submitted to Discover stockholders. Shares of Discover preferred stock (and depositary shares representing Discover preferred stock) are not entitled to any votes at the Discover special meeting.

As of the close of business on the Discover record date, Discover directors and executive officers and their affiliates owned and were entitled to vote approximately [     ] shares of Discover common stock, representing less than [  ] percent ([  ]%) of the outstanding shares of Discover common stock. We currently expect that Discover’s directors and executive officers will vote their shares in favor of the Discover merger proposal, the Discover compensation proposal and the Discover adjournment proposal, although none of them has entered into any agreements obligating them to do so.

Broker Non-Votes

A broker non-vote occurs when a bank, broker, trustee or other nominee is not permitted to vote on a “non-routine” matter without instructions from the beneficial owner of the shares and the beneficial owner fails to provide the bank, broker, trustee or other nominee with such instructions. Broker non-votes only count toward a quorum if at least one proposal is presented with respect to which the bank, broker, trustee or other nominee has discretionary authority. It is expected that all proposals to be voted on at the Discover special meeting will be “non-routine” matters, and, as such, broker non-votes, if any, will not be counted as present and entitled to vote for purposes of determining a quorum at the Discover special meeting. If your bank, broker, trustee or other nominee holds your shares of Discover common stock in “street name,” such entity will vote your shares of Discover common stock only if you provide instructions on how to vote by complying with the instructions provided to you by your bank, broker, trustee or other nominee with this joint proxy statement/prospectus. Please check the voting instruction form used by your bank, broker, trustee or other nominee.

Vote Required; Treatment of Abstentions, Broker Non-Votes and Failure to Vote

Discover merger proposal:

Vote required: Approval of the Discover merger proposal requires the affirmative vote of the holders of a majority of outstanding shares of Discover common stock entitled to vote on the merger agreement. Approval of the Discover merger proposal is a condition to the completion of the first merger.

Effect of abstentions, broker non-votes and failure to vote: If you are present at the Discover special meeting and abstain from voting, respond by proxy with an “ABSTAIN,” fail to submit a proxy or vote at the Discover special meeting or fail to instruct your bank, broker, trustee or other nominee how to vote with respect to the Discover merger proposal, it will have the same effect as a vote cast “AGAINST” the Discover merger proposal.

Discover compensation proposal:

Vote required: Approval of the Discover compensation proposal requires the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the Discover special meeting and entitled to vote on the Discover compensation proposal. Approval of the Discover compensation proposal is not a condition to the completion of the first merger.

Effect of abstentions, broker non-votes and failure to vote: If you are present at the Discover special meeting and abstain from voting, or respond by proxy with an “ABSTAIN,” it will have the same effect as a vote cast “AGAINST” the Discover compensation proposal. If you are not present at the Discover special meeting and do not respond by proxy or do not provide your bank, broker, trustee or other nominee with instructions, as applicable and as may be required, it will have no effect on such proposal.

 

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Discover adjournment proposal:

Vote required: Whether or not a quorum will be present at the meeting, approval of the Discover adjournment proposal requires a majority of the voting power of the shares present in person or represented by proxy at the Discover special meeting and entitled to vote on the Discover adjournment proposal. Approval of the Discover adjournment proposal is not a condition to the completion of the first merger.

Effect of abstentions, broker non-votes and failure to vote: If you are present at the Discover special meeting and abstain from voting, or respond by proxy with an “ABSTAIN,” it will have the same effect as a vote cast “AGAINST” the Discover adjournment proposal. If you are not present at the Discover special meeting and do not respond by proxy or do not provide your bank, broker, trustee or other nominee with instructions, as applicable and as may be required, it will have no effect on such proposal.

Attending the Special Meeting

If you are a holder of record of Discover common stock on the Discover record date, you will be able to attend the Discover special meeting, ask questions and vote during the meeting. Each person attending the Discover special meeting must present a valid, government-issued form of identification in order to be admitted to the Discover special meeting. Each stockholder attending also must provide proof of ownership of shares of Discover common stock as of the Discover record date. If you are a record holder, proof of ownership will be established by Discover’s verification of your name against Discover’s list of record holders as of the Discover record date.

If you hold Discover common stock through a broker, bank, trustee or other nominee, you must bring a copy of a statement reflecting your stock ownership as of the record date, and if you wish to vote in person, you must also bring a legal proxy from your bank, broker, trustee or other nominee. See the section entitled “—Shares Held in Street Name” below for further information. If you hold your shares through a bank, broker, trustee or other nominee and you do not want to attend the Discover special meeting, please contact the respective entity for instructions on how to vote your shares of Discover common stock at the Discover special meeting.

Even if you plan to attend the Discover special meeting, Discover recommends that you vote your shares in advance by proxy as described below so that your vote will be counted if you later decide not to or become unable to attend the Discover special meeting.

Proxies

A Discover stockholder may vote by proxy or at the Discover special meeting. If you hold your shares of Discover common stock in your name as a holder of record, to submit a proxy, you, as a Discover stockholder, may use one of the following methods:

 

•

By telephone: by calling the toll-free number indicated on the accompanying proxy card and following the recorded instructions.

 

•

Through the Internet: by visiting the website indicated on the accompanying proxy card and following the instructions.

 

•

By mail: by completing and returning the accompanying proxy card in the enclosed postage-paid envelope. The envelope requires no additional postage if mailed in the United States.

If you intend to submit your proxy by telephone or via the Internet, you must do so by 11:59 p.m., [Central Time], on the day before the Discover special meeting. If you intend to submit your proxy by mail, your completed proxy card must be received prior to the Discover special meeting.

 

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Discover requests that Discover stockholders vote by telephone, over the Internet or by completing and signing the accompanying proxy card and returning it to Discover as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed, the shares of Discover common stock represented by it will be voted at the Discover special meeting in accordance with the instructions contained on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the Discover merger proposal, “FOR” the Discover compensation proposal and “FOR” the Discover adjournment proposal.

If a holder’s shares are held in “street name” by a bank, broker, trustee or other nominee, the holder should check the voting form used by that firm to determine whether the holder may vote by telephone or the Internet.

Every vote is important. Accordingly, you should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not you plan to attend the Discover special meeting. Sending in your proxy card or voting by telephone or on the Internet will not prevent you from voting your shares personally at the meeting if you decide to subsequently revoke your proxy.

Shares Held in Street Name

If your shares are held in “street name” through a broker, bank, trustee or other nominee, you must instruct the broker, bank, trustee or other nominee on how to vote your shares. Your broker, bank, trustee or other nominee will vote your shares only if you provide specific instructions on how to vote by following the instructions provided to you by your bank, broker, trustee or other nominee. Please check the voting instruction form used by your bank, broker, trustee or other nominee.

You may not vote shares held in street name by returning a proxy card directly to Discover or by voting in person at the Discover special meeting unless you provide a “legal proxy” giving you the right to vote the shares, which you must obtain from your broker, bank, trustee or other nominee. If you choose to vote your shares in person at the Discover special meeting, you must present a valid government-issued picture identification and a copy of a brokerage statement reflecting your stock ownership as of the Discover record date.

Further, brokers, banks, trustees or other nominees who hold shares of Discover common stock on behalf of their customers may not give a proxy to Discover to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks, trustees and other nominees do not have discretionary voting power on the proposals that will be voted upon at the Discover special meeting.

Revocability of Proxies

If you are a Discover stockholder of record, you may revoke your proxy at any time before it is voted by:

 

•

voting by telephone or the Internet at a later time, before 11:59 p.m., [Central Time], on the day before the Discover special meeting;

 

•

attending the Discover special meeting and voting in person;

 

•

granting a subsequently dated proxy; or

 

•

submitting a written notice of revocation to Discover’s corporate secretary at Discover Financial Services, 2500 Lake Cook Road, Riverwoods, Illinois 60015, Attention: Corporate Secretary.

Attendance at the Discover special meeting will not in and of itself constitute revocation of a proxy. A revocation or later-dated proxy received by Discover after the deadlines described above will not affect the vote. If the Discover special meeting is postponed or adjourned, it will not affect the ability of Discover stockholders of record as of the Discover record date to exercise their voting rights or to revoke any previously granted proxy using the methods described above.

 

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If you are a “street name” holder of Discover common stock, you may change your vote by submitting new voting instructions to your bank, broker, trustee or other holder of record. You must contact the record holder of your shares to obtain instructions as to how to change your proxy vote.

Adjournments and Postponements

Although it is not currently expected, the Discover special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. In the event that there is present, in person or by proxy, sufficient favorable voting power to secure the vote of Discover stockholders necessary to approve the Discover merger proposal, Discover does not anticipate that it will adjourn or postpone the Discover special meeting, unless it is advised by counsel that such adjournment or postponement is necessary under applicable law to allow additional time for any disclosure. Any adjournment or postponement of the Discover special meeting for the purpose of soliciting additional proxies will allow Discover stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Discover special meeting as adjourned or postponed.

Delivery of Proxy Materials

As permitted by applicable law, only one (1) copy of this joint proxy statement/prospectus is being delivered to Discover stockholders residing at the same address, unless such Discover stockholders have notified Discover of their desire to receive multiple copies of the joint proxy statement/prospectus.

If you hold shares of both Discover common stock and Capital One common stock, you will receive separate packages of proxy materials.

Discover will promptly deliver, upon oral or written request, a separate copy of the joint proxy statement/prospectus to any second holder of Discover common stock residing at an address to which only one (1) copy of such document was mailed. Requests for additional copies should be directed to Discover’s Investor Relations at (224) 405-4555, or Discover’s proxy solicitor, Innisfree M&A Incorporated, by calling toll-free at (877) 687-1873 or collect at (212) 750-5833.

Solicitation of Proxies

Discover and Capital One will share equally the expenses incurred in connection with the printing and mailing of this joint proxy statement/prospectus. To assist in the solicitation of proxies, Discover has retained Innisfree M&A Incorporated, for a base fee of $50,000 plus $5.50 per call made to or received from individual retail investors, plus, upon receipt of the requisite Discover stockholder approval, an additional success fee of 50% of the aggregate fees paid and reimbursement of out-of-pocket expenses for its services. Discover and its proxy solicitor may also request banks, brokers, trustees and other intermediaries holding shares of Discover common stock beneficially owned by others send this joint proxy statement/prospectus to, and obtain proxies from, the beneficial owners and may reimburse such record holders for their reasonable out-of-pocket expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone and other electronic means, advertisements and personal solicitation by the directors, officers or employees of Discover. No additional compensation will be paid to Discover’s directors, officers or employees for solicitation.

Other Matters to Come Before the Discover Special Meeting

Discover management knows of no other business to be presented at the Discover special meeting, but if any other matters are properly presented at the meeting or any adjournments or postponements thereof, the persons named in the proxies will vote upon them in accordance with the board of directors’ recommendations.

Assistance

If you need assistance in completing your proxy card, have questions regarding Discover’s special meeting or would like additional copies of this joint proxy statement/prospectus, please contact Discover’s Investor Relations at (224) 405-4555, or Discover’s proxy solicitor, Innisfree M&A Incorporated, by calling toll-free at (877) 687-1873 or collect at (212) 750-5833.

 

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DISCOVER PROPOSALS

PROPOSAL 1: DISCOVER MERGER PROPOSAL

Discover is asking Discover stockholders to adopt the merger agreement. Discover stockholders should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement, the mergers and the other transactions contemplated thereby. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

After careful consideration, the Discover board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Discover and its stockholders and unanimously adopted the merger agreement and authorized and approved the mergers and the other transactions contemplated by the merger agreement. See the section entitled “The Mergers—Discover’s Reasons for the Mergers; Recommendation of the Discover Board of Directors” beginning on page 63 for a more detailed discussion of the Discover board of directors’ recommendation.

The approval of the Discover merger proposal by Discover stockholders is a condition to the completion of the first merger.

The Discover board of directors unanimously recommends a vote “FOR” the Discover merger proposal.

PROPOSAL 2: DISCOVER COMPENSATION PROPOSAL

Pursuant to Section 14A of the Exchange Act and Rule 14a-21(c) thereunder, Discover is seeking a non-binding, advisory stockholder approval of the compensation of Discover’s named executive officers (as defined in this joint proxy statement/prospectus) that is based on, or otherwise relates to, the mergers as disclosed in the section entitled “The Mergers—Interests of Discover’s Directors and Executive Officers in the Mergers” beginning on page 87. The proposal gives Discover stockholders the opportunity to express their views on the merger-related compensation of Discover’s named executive officers.

Accordingly, Discover is asking Discover stockholders to vote “FOR” the adoption of the following resolution, on a non-binding, advisory basis:

“RESOLVED, that the compensation that will or may be paid or become payable to the Discover named executive officers, in connection with the mergers, and the agreements or understandings pursuant to which such compensation will or may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Mergers—Interests of Discover’s Directors and Executive Officers in the Mergers” are hereby APPROVED.”

The vote on the Discover compensation proposal is a vote separate and apart from the votes on the Discover merger proposal and the Discover adjournment proposal. Accordingly, if you are a Discover stockholder, you may vote to approve the Discover merger proposal and/or the Discover adjournment proposal and vote not to approve the Discover compensation proposal, and vice versa. The approval of the Discover compensation proposal by Discover stockholders is not a condition to the completion of the mergers. If the mergers are completed, the merger-related compensation will be paid to Discover’s named executive officers to the extent payable in accordance with the terms of the compensation agreements and arrangements even if Discover stockholders fail to approve the advisory vote regarding merger-related compensation.

The Discover board of directors unanimously recommends a vote “FOR” the Discover compensation proposal.

 

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PROPOSAL 3: DISCOVER ADJOURNMENT PROPOSAL

The Discover special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Discover special meeting to approve the Discover merger proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Discover stockholders.

If, at the Discover special meeting, the number of shares of Discover common stock present in person or represented and voting in favor of the Discover merger proposal is insufficient to approve the Discover merger proposal, Discover intends to move to adjourn the Discover special meeting in order to enable the Discover board of directors to solicit additional proxies for approval of the Discover merger proposal. In that event, Discover will ask Discover stockholders to vote upon the Discover adjournment proposal, but not the Discover merger proposal or the Discover compensation proposal.

In this proposal, Discover is asking Discover stockholders to authorize the holder of any proxy solicited by the Discover board of directors, on a discretionary basis, to vote in favor of adjourning the Discover special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Discover stockholders who have previously voted. Pursuant to the Discover bylaws, the Discover special meeting may be adjourned without new notice being given if the date of the adjourned meeting is not more than thirty (30) days after the date for which the meeting was originally noticed.

The approval of the Discover adjournment proposal by Discover stockholders is not a condition to the completion of the mergers.

The Discover board of directors unanimously recommends a vote “FOR” the Discover adjournment proposal.

 

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INFORMATION ABOUT THE COMPANIES

Capital One Financial Corporation

1680 Capital One Drive

McLean, VA 22102

(703) 720-1000

Headquartered in McLean, Virginia, Capital One is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One’s principal operating subsidiary is Capital One, National Association. Capital One and its subsidiaries offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branch locations, cafés and other distribution channels. Capital One offers credit cards, debit cards, bank lending, treasury management and depository services, auto loans and other consumer lending products in markets across the United States. Capital One services banking customer accounts through digital channels and Capital One’s network of branch locations, cafés, call centers and ATMs. As of December 31, 2023, Capital One had, on a consolidated basis, total assets of $478.5 billion and total deposits of $348.4 billion.

Shares of Capital One common stock are traded on the NYSE under the symbol “COF.”

For more information about Capital One, please visit Capital One’s website at www.capitalone.com. The information provided on Capital One’s website (other than the documents incorporated by reference herein) is not part of this joint proxy statement/prospectus and is not incorporated herein by reference. Additional information about Capital One is included in documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 189.

Vega Merger Sub, Inc.

1680 Capital One Drive

McLean, VA 22102

(703) 720-1000

Merger Sub is a Delaware corporation and a wholly owned subsidiary of Capital One. Merger Sub was incorporated for the sole purpose of effecting the first merger. Merger Sub will not conduct any activities other than those incidental to its formation, the execution of the merger agreement and the transactions contemplated by the merger agreement. Following the first merger, the separate corporate existence of Merger Sub will cease.

Discover Financial Services

2500 Lake Cook Road Riverwoods, IL 60015 (224) 405-4555

Discover is a digital banking and payment services company. Discover was incorporated in Delaware in 1960. Discover is a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act. Discover provides digital banking products and services and payment services through its subsidiaries. Discover offers its customers credit card loans, private student loans, personal loans, home loans and deposit products. Discover had $128.4 billion in loan receivables and $84.0 billion in deposits issued through direct-to-consumer channels and affinity relationships at December 31, 2023. Discover also operates the Discover Network, PULSE and Diners Club, collectively known as the Discover Global Network. The Discover Network processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs domestically and internationally, as well as merchant acceptance throughout the United States for debit card

 

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transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded credit and charge cards and/or provide card acceptance services.

Discover common stock is traded on the New York Stock Exchange under the symbol “DFS.”

For more information about Discover, please visit Discover’s website at www.discover.com. The information provided on Discover’s website (other than the documents incorporated by reference herein) is not part of this joint proxy statement/prospectus and is not incorporated herein by reference. Additional information about Discover is included in documents incorporated by reference in this joint proxy statement/prospectus. See the sections entitled “Where You Can Find More Information” beginning on page 189 for the location of information incorporated by reference into this joint proxy statement/prospectus.

 

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THE MERGERS

This section of the joint proxy statement/prospectus describes material aspects of the mergers. This summary may not contain all of the information that is important to you. You should carefully read this entire joint proxy statement/prospectus and the other documents we refer you to, including the merger agreement, for a more complete understanding of the mergers. In addition, we incorporate important business and financial information about each of Capital One and Discover into this joint proxy statement/prospectus by reference. You may obtain the information incorporated by reference into this joint proxy statement/prospectus without charge by following the instructions in the section entitled “Where You Can Find More Information” beginning on page 189.

Terms of the Mergers

Each of Capital One’s and Discover’s respective board of directors has unanimously approved the merger agreement and the transactions contemplated thereby, including the mergers. The merger agreement provides that, pursuant to the terms and subject to the conditions set forth in the merger agreement, Merger Sub will merge with and into Discover, with Discover as the surviving corporation, which is referred to as the first merger. Immediately following the first merger, Discover will merge with and into Capital One, with Capital One as the surviving corporation, which is referred to as the second step merger. Immediately following the completion of the second step merger, Discover Bank will merge with and into Capital One Bank, with Capital One Bank as the surviving bank, which is referred to as the bank merger.

Subject to the terms and conditions of the merger agreement, at the effective time of the first merger, each share of Discover common stock issued and outstanding immediately prior to the effective time (other than certain shares owned by Discover or Capital One, subject to certain exceptions set forth in the merger agreement) will be converted into the right to receive 1.0192 shares of Capital One common stock. Discover stockholders who would otherwise be entitled to a fraction of a share of Capital One common stock in the first merger will instead receive, in lieu of the fraction of a share, an amount in cash (rounded to the nearest cent) based on the Capital One closing share value.

Subject to the terms and conditions of the merger agreement, at the second effective time, each share of Discover preferred stock issued and outstanding immediately prior to the second effective time will be converted into the right to receive one (1) share of an applicable newly created series of Capital One preferred stock having terms that are not materially less favorable than the terms of the applicable series of Discover preferred stock.

Capital One stockholders are being asked to approve the Capital One share issuance proposal and Discover stockholders are being asked to approve the Discover merger proposal. See the section entitled “The Merger Agreement” beginning on page 104 for additional and more detailed information regarding the legal documents that govern the mergers, including information about the conditions to the completion of the mergers and the provisions for terminating or amending the merger agreement.

Background of the Mergers

As part of the ongoing consideration and evaluation of their respective long-term prospects and strategies, each of the Capital One board of directors and the Discover board of directors, and Capital One’s and Discover’s management, have regularly reviewed and assessed their respective business strategies and objectives, including strategic opportunities and challenges, and have considered the various strategic options potentially available to them, all with the goal of enhancing value for their respective stockholders and delivering the best possible services to their respective customers and communities. These strategic discussions have focused on, among other things, the business and regulatory environment facing financial institutions generally and Capital One and Discover, respectively, in particular, as well as conditions and trends affecting the financial services industry. While various potential acquirers were rumored to have considered an acquisition of Discover in the several years prior to its execution of the merger agreement, Discover had not participated in meaningful discussions with any potential acquirers and it was generally pursuing a standalone business strategy during this time.

 

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In July 2023, Discover disclosed a card product misclassification issue and a related liability of $365 million, as well as a proposed FDIC consent order. In addition, on August 14, 2023, Discover announced the resignation of its Chief Executive Officer and that John Owen, a member of the Discover board of directors, was appointed interim Chief Executive Officer and President, and Discover engaged a leading global executive search firm to commence a process to identify a permanent Chief Executive Officer. Following these announcements and a decline in the trading price of Discover common stock, Thomas Maheras, the independent Chairman of the Discover board of directors received several inquiries, largely from investment bankers, regarding Discover’s future strategic direction and its willingness to consider potential strategic options. Mr. Maheras reported to the Discover board of directors that he had received such inquiries and indicated that, although these were not actionable inquiries, he would keep the Discover board of directors informed of any subsequent inquiries and discussions that did indeed merit further consideration.

These inquiries included outreach from Stephen Crawford, a senior advisor to Richard Fairbank, Capital One’s Chief Executive Officer and Chairman, who contacted Mr. Maheras in the middle of August 2023. Thereafter, Mr. Crawford and Mr. Maheras had several high-level conversations regarding the financial services industry, the business and strategies of their respective companies and touched upon Discover’s ongoing Chief Executive Officer search process. In one of these conversations, Mr. Crawford asked if Mr. Maheras would be willing to meet with him and Mr. Fairbank. Mr. Maheras agreed and a meeting was arranged for September 13, 2023 in New York City. During this time, in the middle of August 2023, Capital One selected Centerview to serve as its financial advisor and Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”) to serve as its counsel in connection with Capital One’s evaluation of a potential acquisition of Discover.

On September 8, 2023, a special meeting of the Capital One board of directors was held to discuss a potential acquisition of Discover, which was attended by members of Capital One management. At the meeting, Mr. Fairbank and Mr. Crawford summarized Mr. Crawford’s discussions with Mr. Maheras and provided an overview, based on publicly available information, of Discover’s business, financial position and compliance issues and risks, as well as preliminary views on potential synergies and other benefits that could be realized through an acquisition of Discover by Capital One.

Mr. Maheras, Mr. Crawford and Mr. Fairbank met on September 13, 2023. At the meeting, Mr. Fairbank discussed his views on Capital One and Discover’s respective businesses, his longstanding appreciation for Discover and the potential benefits of a combination of Capital One and Discover. Capital One’s presentation to Mr. Maheras in the meeting indicated that Capital One would potentially be willing to consider a stock for stock transaction that included a 30% premium to the trading price of Discover common stock. At the conclusion of the meeting, Mr. Maheras stated that Discover was not actively seeking any combination or other strategic transaction at the present time.

The Discover board of directors met on September 22, 2023, and at that meeting, Mr. Maheras reported that he had received certain inquiries and it was possible that he would receive additional inquiries regarding potential strategic transactions. Mr. Maheras, referring to the discussions with Capital One, informed the directors of his view that one such inquiry likely merited further consideration. For the sake of efficiency given the circumstances, the board determined to assemble a subset of directors to take the lead on evaluating actionable inquiries and pursuing discussions in advance of further consideration of such inquiries by the board. Following this meeting, this subset of directors was identified and it included Mr. Maheras, Jeffrey Aronin, Gregory Case, Michael Shepherd and Mark Thierer (such directors collectively, the “Discover director subgroup”). On October 3, 2023, the Discover director subgroup met as a group for the first time, and Mr. Maheras updated the Discover director subgroup on the inquiries received and discussions held to date, including those with Capital One.

Mr. Crawford and Mr. Maheras continued their discussions and agreed to hold a further meeting in the Chicago area on October 24, 2023, with members of the Discover director subgroup in attendance. At this meeting, Mr. Fairbank and Mr. Crawford elaborated on the potential benefits of a combination between Capital One and Discover, including the two companies’ complementary businesses and the potential synergies that could be obtained through a combination of Discover and Capital One. At this meeting, Mr. Fairbank reiterated that Capital One would potentially be willing to pursue a transaction that included a 30% price premium.

 

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Mr. Maheras and the other Discover directors in attendance restated that Discover was not actively seeking any combination or other strategic transaction at the present time.

The Discover board of directors held regular meetings on October 25 and 26, 2023, in the Chicago area, and during the course of these meetings, Mr. Maheras and other members of the Discover director subgroup informed the Discover board of directors of the discussions with Capital One, including the transaction rationale and indicative terms which had been presented in their recent meeting with Messrs. Fairbank and Crawford. Mr. Maheras also reported that there had been no other proposals from a principal of any other banking organization.

A regularly scheduled meeting of the Capital One board of directors was held in early November 2023, which was attended by members of Capital One management as well as representatives of Centerview and Wachtell Lipton. During this meeting, Mr. Fairbank and Mr. Crawford provided an update to the Capital One board of directors regarding the potential acquisition of Discover and their discussions with Mr. Maheras and other members of the Discover board of directors. Capital One management provided the Capital One board of directors an overview, based on publicly available information, of the financial position and performance of Discover, its businesses, including its network and brand, as well as of the potential financial implications of a potential acquisition of Discover by Capital One, including potential synergies and other benefits that could be realized through an acquisition, management’s preliminary expectations with respect to transaction structure, and regulatory considerations with respect to a potential acquisition, including relating to Discover’s publicly disclosed compliance issues.

On November 15, 2023, Mr. Maheras met with the Discover director subgroup and the subgroup discussed whether to move forward with more formal meetings and discussions with Capital One. On the same day, during a meeting of the Discover board of directors, Mr. Maheras updated the board on the ongoing discussions with Capital One and indicated that he was expecting to speak again with Mr. Crawford in the coming days.

Mr. Crawford and Mr. Maheras spoke briefly on November 17, 2023 and set up an in-person meeting to be held on November 20, 2023 in New York City.

In that discussion on November 20, 2023, Mr. Crawford asked Mr. Maheras for his reaction to the previous presentations and what the Discover board of directors would require, in Mr. Maheras’s view, to proceed further with respect to the potential transaction. Mr. Maheras again indicated that Discover was not formally considering a combination or other strategic transaction at the present time and that he was unsure whether a 30% premium would be considered sufficient by the Discover board of directors to merit proceeding further with respect to the potential transaction. In response, Mr. Crawford suggested that Capital One may be willing to engage in a transaction that included a premium of 33%.

Following the meeting between Mr. Crawford and Mr. Maheras, on November 22, 2023, the Discover director subgroup met to discuss the potential transaction and next steps, including selecting Morgan Stanley & Co. LLC and PJT Partners to advise Discover on financial matters in connection with the potential transaction. Discover also engaged Sullivan & Cromwell LLP (“Sullivan & Cromwell”) as its legal counsel in connection with the potential transaction.

Later, on November 22, 2023, representatives of Sullivan & Cromwell shared a draft non-disclosure agreement with representatives of Wachtell Lipton. Discover and Capital One executed the non-disclosure agreement on November 23, 2023. Initial high-level diligence discussions between senior management of Capital One and of Discover began immediately thereafter and, in the days that followed, Discover and Capital One made available various materials for due diligence review of the other in virtual data rooms. On November 24, 2023, senior management of Discover and of Capital One met to discuss preliminary due diligence matters and the transaction process. Thereafter, senior management of Capital One and of Discover and the parties’ respective legal and financial advisors reviewed these materials and engaged in due diligence, including a significant number of due diligence meetings and videoconferences. Representatives of Sullivan & Cromwell and Wachtell Lipton engaged in various discussions regarding the structure of the potential transaction and other legal and regulatory matters.

 

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On November 29, 2023, the Discover board of directors held a regularly scheduled meeting. Mr. Maheras provided an update on the status of the discussions with Capital One and informed the Discover board of directors of the diligence that was being conducted by both parties’ management teams and advisors.

On December 2, 2023, representatives of Wachtell Lipton provided an initial draft of the merger agreement to Sullivan & Cromwell.

On December 7, 2023, the Discover board of directors met to consider various matters, including the appointment of Michael Rhodes, who was the candidate to become Discover’s next Chief Executive Officer recommended by the Special Search Committee of the Discover board of directors (which included Mr. Maheras, David Rawlinson, John Owen and Jennifer Wong). Mr. Rhodes’s appointment was approved at the meeting. That same day, Mr. Crawford and Mr. Maheras spoke and Mr. Crawford updated Mr. Maheras on the status of Capital One’s due diligence, and Mr. Crawford and Mr. Maheras determined, based on the status of Capital One’s due diligence and various other factors, to not proceed further with discussions toward the potential transaction. Immediately following this conversation between Mr. Crawford and Mr. Maheras, the parties discontinued their discussions regarding the potential transaction.

On December 11, 2023, Discover publicly announced that Mr. Rhodes had been appointed as its next Chief Executive Officer.

A regularly scheduled meeting of the Capital One board of directors was held on December 14, 2023, which was attended by members of Capital One management. During this meeting, Mr. Fairbank and Mr. Crawford discussed management’s determination not to proceed further with due diligence and negotiation of a potential acquisition of Discover at the present time. This discussion included a review of potential opportunities and risks presented by a potential acquisition of Discover at the present time, including compliance-related risks and financial risks, as well as the circumstances in which a potential acquisition of Discover might be pursued in the future. Throughout the remainder of December 2023 and January 2024, Capital One management continued to monitor developments related to Discover’s business and financial performance.

On January 26, 2024, Mr. Crawford called Mr. Maheras, prior to an upcoming meeting of the Capital One board of directors, to indicate that Capital One may potentially be interested in resuming the discussions regarding a potential transaction and that the Capital One board of directors intended to discuss doing so at its upcoming meeting.

At the beginning of February 2024, a regularly scheduled meeting of the Capital One board of directors was held, which was attended by members of Capital One management as well as representatives of Centerview and Wachtell Lipton. Capital One management provided an update to the Capital One board of directors with respect to Discover’s recent announcement of its 2023 financial results, as well as Capital One’s continued analysis of Discover’s credit portfolio, payment network and other businesses. Capital One management reviewed with the Capital One board of directors the potential cost savings, revenue synergies and other benefits that could be realized through an acquisition of Discover, as well as Discover’s compliance and risk challenges, Capital One’s due diligence of those issues to date, and the opportunity to potentially remediate those issues given Capital One’s investments in its compliance and risk management programs. Following discussion, the Capital One board of directors unanimously supported the resumption of negotiations with Discover and directed Capital One management to pursue the potential transaction expeditiously.

Following this meeting of the Capital One board of directors, on February 5, 2024, Mr. Crawford spoke with Mr. Maheras and indicated Capital One’s willingness to resume discussions about a potential transaction. Mr. Crawford presented Mr. Maheras with Capital One’s proposal for a fixed exchange ratio of 1.0192 shares of Capital One common stock for each share of Discover common stock, representing a 30% premium to the trading price of Discover common stock as of the closing of the NYSE on February 2, 2024. Mr. Crawford and Mr. Maheras also discussed that, in order to protect both parties from significant price movement in Discover common stock or Capital One common stock prior to the announcement of a potential transaction, this fixed

 

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exchange ratio would not result in a premium to Discover common stock at the time of announcement of greater than 35% or less than 25%, and if it became necessary to lower the exchange ratio to reflect a 35% premium or increase the exchange ratio to reflect a 25% premium at the time of announcement, such an adjustment would be made. Mr. Maheras indicated to Mr. Crawford that he would further discuss Capital One’s updated proposed terms and the prospect of resuming discussions toward a potential transaction with the Discover board of directors. Mr. Crawford and Mr. Maheras also discussed that if the potential transaction were to be finalized, it was in both parties’ interest to proceed expeditiously and that February 20, 2024, before the opening of markets after the Presidents’ Day holiday, was an advisable target signing date.

On February 6, 2024, the Discover director subgroup met, with representatives of PJT Partners and Sullivan & Cromwell present. Mr. Maheras provided an update on his discussions with Mr. Crawford as well as Capital One’s interest in resuming work toward a potential transaction and the updated terms. The Discover director subgroup agreed that there was merit to resuming the discussions with Capital One based on the terms presented and that this course of action should be presented to the full Discover board of directors at their next scheduled meeting on February 9, 2024.

On February 9, 2024, the Discover board of directors held a meeting and in executive session the independent directors discussed Capital One’s proposal to resume work toward a potential transaction and the updated terms. Representatives of Sullivan & Cromwell were present for this discussion. The Discover board of directors evaluated the updated terms, the merits of reengaging with Capital One, the feasibility of reaching a definitive agreement before February 20, 2024 and the potential benefits of the potential transaction with Capital One as well as its potential effects on Discover’s ongoing efforts to remediate identified compliance issues. Following discussions, the directors agreed that Discover’s senior management and Discover’s advisors should be instructed to work toward finalizing the potential transaction with Capital One based on the proposed terms on or before such date.

On February 10, 2024, senior management of Discover and of Capital One formally resumed their due diligence discussions and review, and between February 11, 2024 and February 18, 2024, Discover and Capital One and their advisors held numerous management and due diligence meetings, including with respect to Discover’s various banking and network business lines and functional areas including technology, human resources, legal, finance and risk and compliance, as well as reverse due diligence by Discover on Capital One. On February 12, 2024, and on February 13, 2024, representatives of Sullivan & Cromwell provided comments on the draft merger agreement to Wachtell Lipton which had been shared on December 2, 2023.

Throughout the period between February 13, 2024 and February 18, 2024, the parties and their advisors continued their due diligence meetings and negotiation of the terms of the potential transaction. Representatives of Wachtell Lipton and Sullivan & Cromwell exchanged numerous drafts of the merger agreement reflecting various comments from the parties and these meetings and discussions. The parties engaged in detailed discussions with respect to the merger agreement’s interim operating covenants given the contemplated period between the signing and closing of the potential transaction, with these discussions focusing on entry into certain types of material agreements, settlement of litigation and employment and compensation matters. The parties also discussed during this period the number of current Discover directors that would join the Capital One board of directors upon the closing of the potential transaction, and, on February 19, 2024, it was agreed that three Discover directors would join the Capital One board of directors upon the closing of the potential transaction.

On February 18, 2024, the Discover board of directors met to analyze and consider further the terms of the potential transaction, with members of Discover management and representatives of PJT Partners and Sullivan & Cromwell in attendance. Mr. Maheras and Mr. Rhodes updated the directors on the status of the negotiations with Capital One, and Mr. Rhodes outlined his and management’s views with respect to the benefits of the potential transaction to Discover and its various stakeholders as well as the possible economic and customer benefits resulting from the potential transaction as a result of combining the two companies. Members of Discover’s senior management then provided the Discover board of directors with a detailed overview of their due diligence

 

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findings with respect to Capital One which included, among other things, their review of Capital One’s business lines and strategy, financial outlook and credit quality, the potential synergies in the transaction and other matters. Representatives of Sullivan & Cromwell provided the Discover board of directors with an overview of the terms of the draft merger agreement, discussed the anticipated regulatory process and timing in connection with the potential transaction and reviewed the Discover board of directors’ fiduciary duties. Representatives of PJT Partners reviewed with the Discover board of directors certain preliminary and illustrative financial analyses related to the potential transaction. The meeting concluded with an executive session of the Discover board of directors in which the directors discussed certain employment and compensation matters related to the potential transaction with representatives of Sullivan & Cromwell.

Also on February 18, 2024, a special meeting of the Capital One board of directors was convened to discuss the potential acquisition of Discover, which was attended by members of Capital One management, as well as representatives of Centerview and Wachtell Lipton. At the meeting, Mr. Fairbank reviewed the final negotiations with Discover and strategic and financial considerations related to the proposed acquisition of Discover. Members of management provided an overview of the due diligence process and conclusions of Capital One management, including with respect to Discover’s network, credit, banking, and other businesses, its financial position, and its compliance and regulatory, legal, technology, human resources and other enterprise functions, as well as the anticipated timeline for the proposed acquisition. Representatives of Centerview reviewed with the Capital One board of directors Centerview’s financial analysis of the exchange ratio, and rendered to the Capital One board of directors an oral opinion, which was subsequently confirmed by delivery of a written opinion dated February 19, 2024, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its opinion, the exchange ratio provided for pursuant to the merger agreement was fair, from a financial point of view, to Capital One. For a detailed discussion of Centerview’s opinion, please see below in the section entitled “—Opinion of Capital One’s Financial Advisor” beginning on page 65. Representatives of Wachtell Lipton reviewed for the directors the terms of the proposed merger agreement and other transaction documents and reviewed the directors’ fiduciary duties in connection with their consideration of a potential acquisition of Discover. Following further discussion, during which the directors considered the matters reviewed and discussed at that meeting and all prior meetings during which the potential acquisition of Discover was discussed, including the factors described below in the section entitled “ —Capital One’s Reasons for the Mergers; Recommendation of the Capital One Board of Directors” beginning on page 60, the Capital One board of directors unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the mergers, the bank merger and the Capital One share issuance, are advisable and fair to and in the best interests of Capital One and its stockholders and (ii) adopted and approved the merger agreement and the consummation of the transactions contemplated thereby, including the mergers, the bank merger and the Capital One share issuance.

On February 19, 2024, the Discover board of directors held an additional meeting with members of Discover management and representatives of PJT Partners and Sullivan & Cromwell in attendance. At that meeting, Mr. Maheras and Mr. Rhodes provided an update on the final negotiations with Capital One. At the request of the Discover board of directors, the representatives of PJT Partners reviewed its financial analyses in connection with the proposed mergers. At the request of the Discover board of directors, representatives of PJT Partners then rendered its oral opinion to the Discover board of directors (which was subsequently confirmed in writing) that, as of the date thereof and based upon and subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion (which are stated in its written opinion), the exchange ratio in the mergers was fair to the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)) from a financial point of view. The full text of PJT Partners’ written opinion, which describes, among other things, the assumptions made, procedures followed, matters considered, and

 

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qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion, is attached as Annex C. At the conclusion of the meeting, after further review and discussion by the Discover board of directors, including consideration of the factors described below in the section entitled “ —Discover’s Reasons for the Mergers; Recommendation of the Discover Board of Directors” beginning on page 63, the Discover board of directors unanimously determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Discover and its stockholders and unanimously approved the merger agreement and the transactions contemplated thereby, including the mergers and the bank merger and entry into the merger agreement by Discover.

Following the meeting of the Discover board of directors on February 19, 2024, Capital One and Discover executed the merger agreement in the afternoon of February  19, 2024. The transaction was announced that evening in a press release issued jointly by Capital One and Discover.

Capital One’s Reasons for the Mergers; Recommendation of the Capital One Board of Directors

After careful consideration, the Capital One board of directors, at a special meeting held on February 18, 2024, unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the mergers and the Capital One share issuance, are advisable and fair to and in the best interests of Capital One and its stockholders and (ii) adopted and approved the merger agreement and the consummation of the transactions contemplated thereby, including the mergers and the Capital One share issuance.

In reaching this decision, the Capital One board of directors evaluated the merger agreement, the mergers and the other matters contemplated by the merger agreement in consultation with Capital One’s senior management, as well as with Capital One’s legal and financial advisors, and considered a number of factors, including the following principal factors:

 

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each of Capital One’s and Discover’s business, operations, financial condition, asset quality, earnings, markets and prospects. In reviewing these factors, the Capital One board of directors considered Discover’s financial condition, that Discover’s businesses and operations complement those of Capital One, and its belief that Capital One’s acquisition of Discover had a strong strategic rationale and would deliver compelling financial returns;

 

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that the mergers would accelerate Capital One’s ability to build a global payments technology company that is competitive with the largest payment networks and payments companies and enhance Capital One’s ability to compete with the nation’s largest banks in credit cards and banking and payment services;

 

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the complementary capabilities and franchises of Capital One and Discover and the shared focus of both companies on the customer, and that the surviving entity would be positioned to deliver enhanced products and services to consumers, small businesses, and merchants;

 

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the expanded possibilities to leverage Capital One’s investments in technology, risk management and compliance across a larger enterprise, including Discover’s businesses and network;

 

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Capital One’s and Discover’s shared commitments to customer satisfaction, and to their communities, and the expectation of continuing Capital One’s long track record of community investment and workplace satisfaction;

 

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the current and prospective environment in the financial services industry, including economic conditions, the accelerating pace of technological change in the financial services industry, operating costs and revenue impacts resulting from regulatory and compliance mandates, scale and marketing expenses, increasing competition from both banks and non-bank financial and financial technology firms, current financial market conditions, current employment market conditions and the likely effects of these factors on Capital One’s potential growth, development, productivity and strategic options both with and without the mergers;

 

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•

the complementary nature of the products, customers and markets of the two companies, which Capital One believes should provide the opportunity to mitigate risks and increase potential returns;

 

•

the anticipated pro forma financial impact of the mergers on Capital One, including earnings accretion, return on invested capital, tangible book value, internal rate of return, and regulatory capital levels;

 

•

the Capital One board of directors’ belief that the synergies anticipated by management to be potentially available in the mergers, which included expense synergies of approximately $1.5 billion in 2027 and network synergies of $1.2 billion in 2027, would create the opportunity for superior future earnings and prospects compared to Capital One’s earnings and prospects on a stand-alone basis;

 

•

its review and discussions with Capital One’s senior management concerning Capital One’s due diligence examination of, among other areas, the operations, financial condition and regulatory compliance programs and prospects of Discover;

 

•

its understanding that Capital One stockholders prior to the effective time would own approximately 60% of Capital One’s common stock immediately following the completion of the mergers;

 

•

the fact that the exchange ratio is fixed, with no adjustment in the number of shares of Capital One common stock to be received by Discover stockholders as a result of possible increases or decreases in the trading price of Discover or Capital One common stock following the announcement of the mergers, which the Capital One board of directors believed was consistent with market practice for transactions of this type and with the strategic purpose of the transaction;

 

•

the opinion of Centerview rendered orally to the Capital One board of directors on February 18, 2024, which was subsequently confirmed by delivery of a written opinion dated February 19, 2024, that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the exchange ratio provided for pursuant to the merger agreement was fair, from a financial point of view, to Capital One, as more fully described below in the section entitled “The Mergers—Opinion of Capital One’s Financial Advisor” beginning on page 65;

 

•

its review with Capital One’s outside legal counsel, Wachtell Lipton, of the material terms of the merger agreement, including the representations, covenants, deal protection and termination provisions;

 

•

the fact that Capital One stockholders will have the opportunity to vote to approve the Capital One share issuance proposal;

 

•

the fact that 12 of 15 total directors of Capital One following the mergers would be current members of the Capital One board of directors; and

 

•

the strength of Capital One’s management and infrastructure to successfully complete the integration process.

The Capital One board of directors also considered the potential risks related to the transactions contemplated by the merger agreement. The Capital One board of directors concluded that the anticipated benefits of acquiring Discover were likely to outweigh these risks substantially. These potential risks included:

 

•

the possibility that the anticipated benefits of the transactions contemplated by the merger agreement, including anticipated revenue synergies and cost savings, will not be realized when expected or at all, including as a result of the impact of, or difficulties arising from, the integration of the two companies or as a result of economic conditions, changes in laws or regulations, general market conditions and competitive factors in the markets in which Capital One and Discover conduct their respective businesses;

 

•

the costs to be incurred in connection with the mergers and the integration of Discover’s business into Capital One, including Capital One’s compliance management program, and the possibility that the

 

61

transaction and the integration may be more difficult and expensive to complete than anticipated, including as a result of unexpected factors or events;

 

•

the possibility of encountering difficulties in management and oversight of Capital One’s business and operations following the mergers (including as a result of identifying additional compliance issues, cultural differences or challenges in managing new regulatory actions or customer remediation efforts), and the possibility of increased scrutiny by, and/or additional regulatory expectations or requirements of, government and regulatory authorities, as a result of the mergers and the increased size, scope and complexity of Capital One’s business;

 

•

the risk that certain expenses, such as the provision for credit losses, of Discover or the surviving entity may be greater than expected;

 

•

the risk that Discover’s regulatory and compliance issues, including potential complications and costs relating to Discover’s publicly disclosed card product misclassification issue, are more difficult or more expensive to resolve than currently expected;

 

•

the risk of losing key Capital One or Discover employees and the reaction of each company’s customers, suppliers, employees or other business partners to the mergers during the pendency of the mergers and following completion of the mergers;

 

•

the possible diversion of management focus and resources from the operation of Capital One’s business while working to implement the transactions contemplated by the merger agreement and integrate the two companies;

 

•

the risk that, because the exchange ratio under the merger agreement would not be adjusted for changes in the market price of Capital One common stock or Discover common stock, the value of the shares of Capital One common stock to be issued to Discover stockholders at the effective time could be significantly more than the value of such shares immediately prior to the announcement of the parties’ entry into the merger agreement;

 

•

the risk that the regulatory and other approvals required in connection with the mergers may not be received in a timely manner, or at all, or may impose conditions that may adversely affect the anticipated operations and integration, synergies and financial results of Capital One following the completion of the mergers;

 

•

the potential for legal claims challenging the mergers and the possibility of increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the mergers or the size, scope and complexity of the surviving entity’s business operation; and

 

•

the other risks described in the sections entitled “Risk Factors” beginning on page 30 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27.

The foregoing discussion of the information and factors considered by the Capital One board of directors is not intended to be exhaustive, but includes the material factors considered by the board. In reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement, the Capital One board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The board considered all these factors as a whole, and overall considered the factors to support its determination.

For the reasons set forth above, the Capital One board of directors determined that the merger agreement and the transactions contemplated thereby (including the mergers and the Capital One share issuance) are advisable and fair to and in the best interests of Capital One and its stockholders.

It should be noted that this explanation of the reasoning of the Capital One board of directors and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the risks, uncertainties and assumptions discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27.

 

62

Discover’s Reasons for the Mergers; Recommendation of the Discover Board of Directors

In reaching its decision to approve and adopt the merger agreement and the transactions contemplated thereby, and to recommend that Discover stockholders adopt the merger agreement, the Discover board of directors evaluated the merger agreement and the transactions contemplated thereby in consultation with Discover’s management, as well as with Discover’s legal and financial advisors, and considered a number of factors, including the following principal factors:

 

•

each of Discover’s, Capital One’s and the surviving entity’s business, operations, financial condition, stock performance, asset quality, earnings and prospects; in reviewing these factors, including the information obtained through due diligence, the Discover board of directors considered Capital One’s financial condition and asset quality; that Capital One’s business, operations and risk profile complement those of Discover and that Capital One’s earnings and prospects, and the synergies and scale potentially available in the proposed transaction, create the opportunity for the surviving entity to leverage complementary and diversified revenue streams and to have superior future earnings and prospects compared to Discover’s earnings and prospects on a stand-alone basis;

 

•

the strategic rationale for the mergers, which will add operational scale and investment and position the surviving entity to become a global payments technology network and company that can compete with the largest payments networks and credit card companies and deliver enhanced customer and merchant value;

 

•

the complementary nature of the two companies, including organizational values, strategic focus, shared commitment to outstanding customer service and community development, and the Discover board of directors’ belief that the complementary cultures would facilitate the successful integration and implementation of the transaction;

 

•

the anticipated pro forma financial impact of the mergers on the surviving entity, including earnings, earnings per share accretion, return on equity, tangible book value, operational efficiency and regulatory capital levels;

 

•

the fact that Capital One has made significant investments in technology, risk management and compliance that will be leveraged across the surviving entity as a catalyst for innovation, modernization and enhanced capabilities and the ability to leverage the scale and financial capabilities of the surviving entity to make additional investments in technology, risk management and compliance that can serve as a catalyst for innovation, modernization and enhanced capabilities;

 

•

the expectation of synergies from the transaction, including anticipated revenue synergies and cost savings;

 

•

the anticipated impact and benefits of the mergers on the surviving entity to have greater scale that may enable it to attract additional customers, merchants and employees and have the ability to grow volume and expand and improve products and services to better serve a wide array of customers and merchants;

 

•

its views with respect to other strategic alternatives potentially available to Discover, including continuing as a stand-alone company and its belief that these alternatives would not deliver the financial and operational benefits that could be achieved in the proposed merger with Capital One;

 

•

the terms of the merger agreement, in particular the exchange ratio and the fact that the exchange ratio is fixed, which the Discover board of directors believed was consistent with market practice for transactions of this type and with the strategic purpose of the transaction;

 

•

the premium to Discover stockholders based on the fixed exchange ratio and the relative prices of the companies’ stock at the time of announcement of the mergers;

 

•

its understanding of the current and prospective environment in which Discover and Capital One operate, including national, regional and local economic conditions, the interest rate environment,

 

63

increased operating costs resulting from regulatory and compliance mandates, the accelerating pace of technological change in the financial services industry, increasing competition from both banks and non-bank financial and financial technology firms and other economic factors, the competitive environment for financial institutions generally, and the likely effect of these factors on Discover and the surviving entity’s potential growth, development, productivity and strategic options;

 

•

the expected treatment of the mergers as a “reorganization” for U.S. federal income tax purposes;

 

•

its expectation that, upon consummation of the mergers, Discover stockholders would own approximately 40% of the voting power of the surviving entity;

 

•

the financial presentation of PJT Partners and its oral opinion rendered to the Discover board of directors on February 19, 2024, subsequently confirmed in its written opinion dated February 19, 2024, that, as of the date thereof and based upon and subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion (which are stated therein), the exchange ratio in the mergers was fair to the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)) from a financial point of view, as more fully described in the section entitled “The Mergers—Opinion of Discover’s Financial Advisor” beginning on page 74.

 

•

its review with Discover’s outside legal counsel, Sullivan & Cromwell, of the terms of the merger agreement, the mergers and the other transactions contemplated by the merger agreement, including the representations and warranties, covenants, deal protection and termination provisions and closing conditions; and

 

•

its review and discussions with Discover’s senior management concerning the due diligence examination of the operations, financial condition and regulatory compliance programs and prospects of Capital One.

The Discover board of directors also considered the potential risks related to the transactions contemplated by the merger agreement but concluded that the anticipated benefits of the acquisition by Capital One were likely to substantially outweigh these risks. These potential risks include:

 

•

the potential effect of the mergers on Discover’s overall business, including its relationships with customers, merchants, employees, suppliers and regulators;

 

•

the possibility of encountering difficulties in achieving anticipated revenue synergies and cost savings in the amounts currently estimated or within the time frame currently contemplated;

 

•

the risk that the mergers may not be completed despite the combined efforts of Discover and Capital One or that completion of the mergers may be unduly delayed, including as a result of factors outside of either party’s control;

 

•

the regulatory and other approvals required in connection with the mergers and the bank merger, consideration of the relevant factors assessed by the regulators for the approvals and the parties’ evaluation of those factors, and the risk that such regulatory approvals may not be received in a timely manner or at all or may impose materially burdensome conditions which would lead to the termination or abandonment of the merger agreement the merger and the other transactions contemplated by the merger agreement;

 

•

the possibility that the anticipated benefits of the mergers will not be realized when expected or at all, including as a result of the impact of, or difficulties arising from, the integration of the two companies or general market conditions and competitive factors in the areas where Discover and Capital One operate businesses;

 

64

•

the risk of losing key Discover employees during the pendency of the mergers and thereafter;

 

•

the fixed exchange ratio component of the merger consideration, which will not adjust to compensate for potential declines in the stock price of Capital One prior to completion of the mergers;

 

•

certain anticipated merger-related costs, which could be higher than expected;

 

•

the possible diversion of management attention and resources from the operation of Discover’s business or other strategic opportunities towards the completion of the mergers;

 

•

the fact that the merger agreement places certain restrictions on the conduct of Discover’s business prior to the completion of the mergers, which could potentially delay or prevent Discover from undertaking business opportunities that might arise or certain other actions it might otherwise take with respect to its operations absent the pendency of the mergers;

 

•

the potential for legal claims challenging the mergers; and

 

•

the other risks described under the sections entitled “Risk Factors” beginning on page 30 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27.

The foregoing discussion of the information and factors considered by the Discover board of directors is not intended to be exhaustive, but includes the material factors considered by the Discover board of directors. Although each member of the Discover board of directors individually considered these and other factors, the Discover board of directors did not collectively assign any specific or relative weights to the factors considered and did not make any determination with respect to any individual factor. The Discover board of directors considered all these factors as a whole, including through its discussions with Discover’s management and financial and legal advisors, in evaluating the merger agreement and the transactions contemplated thereby, including the mergers. The Discover board of directors collectively made its determination based on the conclusion reached by its members, in light of the factors that each of them considered appropriate, that the transaction is in the best interests of Discover, its stockholders and its other constituencies.

The Discover board of directors realized that there can be no assurance about future results, including results expected or considered in the factors listed above, such as assumptions regarding anticipated cost savings and earnings accretion/dilution. The Discover board of directors concluded, however, that the potential positive factors outweighed the potential risks of completing the mergers.

In considering the recommendation of the Discover board of directors, you should be aware that certain directors and executive officers of Discover may have interests in the mergers that are different from, or in addition to, interests of stockholders of Discover generally and may create potential conflicts of interest. The Discover board of directors was aware of these interests and considered them when evaluating and negotiating the merger agreement, the mergers and the other transactions contemplated by the merger agreement, and in recommending to Discover’s stockholders that they vote in favor of the Discover merger proposal. See the section entitled “The Mergers—Interests of Discover’s Directors and Executive Officers in the Mergers” beginning on page 87.

It should be noted that this explanation of the reasoning of the Discover board of directors and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27.

For the reasons set forth above, the Discover board of directors unanimously recommends that the Discover stockholders vote “FOR” the Discover merger proposal.

Opinion of Capital One’s Financial Advisor

On February 18, 2024, Centerview rendered to the Capital One board of directors its oral opinion, subsequently confirmed in a written opinion dated February 19, 2024, that, as of such date and based upon and

 

65

subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the exchange ratio provided for pursuant to the merger agreement was fair, from a financial point of view, to Capital One.

The full text of Centerview’s written opinion, dated February 19, 2024, which describes the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, is attached as Annex B and is incorporated herein by reference. The summary of the written opinion of Centerview set forth below is qualified in its entirety to the full text of Centerview’s written opinion attached as Annex B. Centerview’s financial advisory services and opinion were provided for the information and assistance of the Capital One board of directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Transaction and Centerview’s opinion only addressed the fairness, from a financial point of view, as of the date thereof, to Capital One of the exchange ratio to be provided for pursuant to the merger agreement. Centerview’s opinion did not address any other term or aspect of the merger agreement or the Transaction and does not constitute a recommendation to any Capital One stockholder or Discover stockholder or any other person as to how such stockholder or other person should vote with respect to the mergers or otherwise act with respect to the Transaction or any other matter.

The full text of Centerview’s written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion.

In connection with rendering the opinion described above and performing its related financial analyses, Centerview reviewed, among other things:

 

•

a draft of the merger agreement dated February 19, 2024, referred to in this summary of Centerview’s opinion as the “draft merger agreement”;

 

•

Annual Reports on Form 10-K of Discover for the years ended December 31, 2022, December 31, 2021, and December 31, 2020;

 

•

Annual Reports on Form 10-K of Capital One for the years ended December 31, 2022, December 31, 2021, and December 31, 2020;

 

•

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Discover and Capital One;

 

•

certain publicly available research analyst reports for Discover and Capital One;

 

•

certain other communications from Discover and Capital One to their respective stockholders;

 

•

certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Discover, which are referred to in this summary of Centerview’s opinion as the “Discover Internal Data”;

 

•

certain financial forecasts, analyses and projections relating to Discover prepared by management of Capital One and furnished to Centerview by Capital One for purposes of Centerview’s analysis (which information includes an assumed disposition of the student loan business of Discover, the financial impact thereof and pro forma projections resulting therefrom), which are referred to in this summary of Centerview’s opinion as the “Discover Forecasts”;

 

•

certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Capital One, including certain financial forecasts, analyses and projections relating to Capital One prepared by management of Capital One and furnished to Centerview by Capital One for purposes of Centerview’s analysis, which are referred to in this summary of Centerview’s opinion as the “Capital One Forecasts” and which are collectively referred to in this summary of Centerview’s opinion as the “Capital One Internal Data”; and

 

66

•

certain cost savings and operating synergies projected by the management of Capital One to result from the Transaction furnished to Centerview by Capital One for purposes of Centerview’s analysis, which are referred to in this summary of Centerview’s opinion as the “Synergies.”

Centerview also participated in discussions with members of the senior management and representatives of Capital One and Discover regarding their assessment of the Discover Internal Data, the Discover Forecasts, the Capital One Internal Data (including, without limitation, the Capital One Forecasts) and the Synergies, as appropriate, and the strategic rationale for the Transaction. In addition, Centerview reviewed publicly available financial and stock market data, including valuation multiples, for Discover and Capital One and compared that data with similar data for certain other companies, the securities of which are publicly traded, in lines of business that Centerview deemed relevant, and conducted such other financial studies and analyses and took into account such other information as Centerview deemed appropriate.

Centerview assumed, without independent verification or any responsibility therefor, the accuracy and completeness of the financial, legal, regulatory, tax, accounting and other information supplied to, discussed with, or reviewed by Centerview for purposes of its opinion and, with Capital One’s consent, Centerview relied upon such information as being complete and accurate. In that regard, Centerview assumed, at Capital One’s direction, that the Discover Internal Data were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Discover as to the matters covered thereby and that, the Capital One Internal Data (including, without limitation, the Capital One Forecasts), Discover Forecasts and the Synergies were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Capital One as to the matters covered thereby, and Centerview relied, at Capital One’s direction, on Discover Internal Data, Discover Forecasts, the Capital One Internal Data (including, without limitation the Capital One Forecasts) and the Synergies for purposes of Centerview’s analysis and opinion. Centerview expressed no view or opinion as to Discover Internal Data, Discover Forecasts, the Capital One Internal Data (including without limitation, the Capital One Forecasts) or the Synergies or the assumptions on which any of them were based. In addition, at Capital One’s direction, Centerview did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of Discover or Capital One, nor was Centerview furnished with any such evaluation or appraisal, and was not asked to conduct, and did not conduct, a physical inspection of the properties or assets of Discover or Capital One. Centerview assumed, at Capital One’s direction, that the final executed merger agreement would not differ in any respect material to Centerview’s analysis or opinion from the draft merger agreement reviewed by Centerview. Centerview also assumed, at Capital One’s direction, that the Transaction will be consummated on the terms set forth in the merger agreement and in accordance with all applicable laws and other relevant documents or requirements, without delay or the waiver, modification or amendment of any term, condition or agreement, the effect of which would be material to Centerview’s analysis or Centerview’s opinion and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Transaction, no delay, limitation, restriction, condition or other change, including any divestiture requirements or amendments or modifications, will be imposed, the effect of which would be material to Centerview’s analysis or Centerview’s opinion. Centerview further assumed, at Capital One’s direction, that the mergers, taken together, will qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Centerview did not evaluate and did not express any opinion as to the solvency or fair value of Discover or Capital One, or the ability of Discover or Capital One to pay their respective obligations when they come due, or as to the impact of the Transaction on such matters, under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Centerview is not a legal, regulatory, tax or accounting advisor, and Centerview expressed no opinion as to any legal, regulatory, tax or accounting matters.

Centerview’s opinion expressed no view as to, and did not address, Capital One’s underlying business decision to proceed with or effect the Transaction, or the relative merits of the Transaction as compared to any alternative business strategies or transactions that might be available to Capital One or in which Capital One might engage. Centerview’s opinion was limited to and addressed only the fairness, from a financial point of view, as of the date of Centerview’s written opinion, to Capital One of the exchange ratio provided for pursuant

 

67

to the merger agreement. For purposes of its opinion, Centerview was not asked to, and Centerview did not, express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the Transaction, including, without limitation, the structure or form of the Transaction, or any other agreements or arrangements contemplated by the merger agreement or entered into in connection with or otherwise contemplated by the Transaction, including, without limitation, the fairness of the Transaction or any other term or aspect of the Transaction to, or any consideration to be received in connection therewith by, or the impact of the Transaction on, the holders of any class of securities, creditors or other constituencies of Capital One or any other party. In addition, Centerview expressed no view or opinion as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to be paid or payable to any of the officers, directors or employees of Capital One or any party, or class of such persons in connection with the Transaction, whether relative to the exchange ratio provided for pursuant to the merger agreement or otherwise. Centerview’s opinion related to the relative values of Discover or Capital One. Centerview’s opinion was necessarily based on financial, economic, monetary, currency, market and other conditions and circumstances as in effect on, and the information made available to Centerview as of, the date of Centerview’s written opinion, and Centerview does not have any obligation or responsibility to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of Centerview’s written opinion. Centerview expressed no view or opinion as to what the value of the Capital One common stock actually will be when issued pursuant to the Transaction or the prices at which Discover common stock or Capital One common stock will trade or otherwise be transferable at any time, including following the announcement or consummation of the Transaction. Centerview’s opinion does not constitute a recommendation to any Capital One stockholder or Discover stockholder or any other person as to how such stockholder or other person should vote with respect to the mergers or otherwise act with respect to the Transaction or any other matter. Centerview’s financial advisory services and its written opinion were provided for the information and assistance of the Capital One board of directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Transaction. The issuance of Centerview’s opinion was approved by the Centerview Partners LLC Fairness Opinion Committee.

Summary of Centerview Financial Analysis

The following is a summary of the material financial analyses prepared and reviewed with the Capital One board of directors in connection with Centerview’s written opinion, dated February 19, 2024. The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, Centerview, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Centerview. Centerview may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be Centerview’s view of the actual value of Discover or Capital One. Some of the summaries of the financial analyses set forth below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses performed by Centerview. Considering the data in the tables below without considering all financial analyses or factors or the full narrative description of such analyses or factors, including the methodologies and assumptions underlying such analyses or factors, could create a misleading or incomplete view of the processes underlying Centerview’s financial analyses and its opinion. In performing its analyses, Centerview made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Discover, Capital One or any other parties to the Transaction. None of Capital One, Discover, Merger Sub or Centerview or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of Discover or Capital One do not purport to be appraisals or reflect the prices at which Discover or Capital One may actually be sold. Accordingly, the assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject

 

68

to substantial uncertainty. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 16, 2024 (the last trading day before the public announcement of the Transaction) and is not necessarily indicative of current market conditions.

Selected Public Comparable Companies Analysis

Centerview reviewed and analyzed certain financial information, ratios and multiples for the below listed publicly traded companies that Centerview, based on its experience and professional judgment, deemed relevant to consider in relation to Discover and Capital One.

Although none of the selected companies is directly comparable to Discover, Capital One or the surviving entity, the companies listed below were chosen by Centerview, among other reasons, because they are publicly traded companies that have certain operational, business and/or financial characteristics that, for purposes of Centerview’s analyses, Centerview considered similar to those of Discover, Capital One and the surviving entity. However, because none of the selected companies is exactly the same as Discover or Capital One, Centerview believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected companies analysis. Accordingly, Centerview also made qualitative judgments, based on its experience and professional judgment, concerning differences between the business, financial and operating characteristics and prospects of Discover, Capital One and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis.

Using publicly available filings and information obtained from regulatory filings and other data sources as of February 16, 2024, Centerview calculated, for each selected comparable company: (i) a multiple of price to estimated earnings per share for the fiscal year 2024 (referred to in this section as “2024E P/E”); and (ii) a regression analysis (referred to in this section as “P/TBV Regression”) to review the relationship between (x) a multiple of price to tangible book value per share (referred to in this section as “P/TBV”) and (y) the estimated 2024 return on average tangible common equity (referred to in this section as “2024E ROATCE”).

 

Discover Comparables

2024E P/E

P/TBV

2024E ROATCE

Ally Financial Inc.

11.0x

1.02x

9.5

%

American Express Company

16.5x

7.10x

37.4

%

Capital One Financial Corporation

9.9x

1.38x

13.5

%

Citizens Financial Group, Inc.

9.9x

1.02x

10.2

%

Fifth Third Bancorp

10.6x

1.92x

17.2

%

PNC Financial Service Group, Inc.

11.9x

1.75x

14.3

%

Synchrony Financial

7.1x

1.43x

18.8

%

Truist Financial Corporation

10.5x

1.65x

15.8

%

U.S. Bancorp

10.5x

1.86x

17.3

%

 

Capital One Comparables

2024E P/E

P/TBV

2024E ROATCE

Ally Financial Inc.

11.0x

1.02x

9.5

%

American Express Company

16.5x

7.10x

37.4

%

Citizens Financial Group, Inc.

9.9x

1.02x

10.2

%

Discover Financial Services

9.7x

2.04x

18.8

%

Fifth Third Bancorp

10.6x

1.92x

17.2

%

PNC Financial Service Group, Inc.

11.9x

1.75x

14.3

%

Synchrony Financial

7.1x

1.43x

18.8

%

Truist Financial Corporation

10.5x

1.65x

15.8

%

U.S. Bancorp

10.5x

1.86x

17.3

%

 

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Based on the results of this analysis and other factors which Centerview considered appropriate based on its experience and judgment, Centerview selected multiple reference ranges for Discover and Capital One set forth below:

 

		2024E P/E		P/TBV Regression
Discover		9.0x – 11.0x		1.78x – 2.11x
Capital One		9.0x – 11.0x		1.30x – 1.53x

From this analysis, Centerview then applied the multiple reference range of 9.0x to 11.0x for 2024E P/E to Discover’s estimated earnings per share for the fiscal year 2024 of $11.16 as derived from the Discover Forecasts and the Discover Internal Data.

Centerview performed a regression analysis using the P/TBV multiples for the selected companies calculated by Centerview as described above compared to the 2024E ROATCE for those selected companies using the median estimates for such companies to derive a regression line reflecting a range of P/TBV multiples at a range of 2024E ROATCE for the selected companies. Centerview observed that the 2024E ROATCE for Discover of 19.9%, as derived from the Discover Forecasts and the Discover Internal Data, corresponded to an implied P/TBV per share multiple of 1.94x on the regression line. Centerview calculated that the closing price for Discover common stock on February 16, 2024 reflected a multiple of approximately 2.04x the tangible book value per share of $54.04 based on the most recent publicly available financial information as of December 31, 2023.

Centerview applied a range of 2024E ROATCE for Discover of 17.9% (a 10% decrease to the 2024E ROATCE as derived from the Discover Forecasts and the Discover Internal Data) to 21.9% (a 10% increase to the 2024E ROATCE as derived from the Discover Forecasts and the Discover Internal Data). Centerview then calculated regression-implied P/TBV multiples ranging from 1.78x to 2.11x to the tangible book value per share as of December 31, 2023 for Discover as provided by Capital One management.

Applying these ranges to Discover’s estimated 2024E earnings per share and Discover’s tangible book value per share, Centerview’s analysis indicated the following implied equity value per share ranges for the shares of Discover common stock, as compared to the closing price of Discover common stock of $110.49 on February 16, 2024.

 

		Implied Equity Value Per Discover Share(1)
2024E P/E		$107.75 – $130.00
P/TBV Regression		$103.25 – $121.00

 

(1)	Includes on a per share basis the implied net present value of the one-time benefit of the disposition of the student loan business of Discover of approximately $7.25 per share based on the Discover Forecasts and the Discover Internal Data.

Centerview also then applied the multiple reference range of 9.0x to 11.0x for 2024E P/E to Capital One’s estimated earnings per share for the fiscal year 2024 of $13.94 as set forth in the Capital One Internal Data (including the Capital One Forecasts).

Centerview performed a regression analysis using the P/TBV multiples for the selected companies calculated by Centerview as described above compared to the 2024E ROATCE for those selected companies using the median estimates for such companies to derive a regression line reflecting a range of P/TBV multiples at a range of 2024E ROATCE for the selected companies. Centerview observed that the 2024E ROATCE for Capital One of 13.3%, as reflected in the Capital One Internal Data (including the Capital One Forecasts), corresponded to an implied P/TBV per share multiple of 1.42x on the regression line. Centerview calculated that the closing price for Capital One common stock on February 16, 2024 reflected a multiple of approximately 1.38x the tangible book value per share of $99.78, based on the most recent publicly available financial information as of December 31, 2023.

 

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Centerview applied a range of 2024E ROATCE for Capital One of 12.0% (a 10% decrease to the 2024E ROATCE as reflected in the Capital One Internal Data (including the Capital One Forecasts)) to 14.6% (a 10% increase to the 2024E ROATCE as reflected in the Capital One Internal Data (including the Capital One Forecasts)). Centerview then calculated regression-implied P/TBV multiples ranging from 1.30x to 1.53x to the tangible book value per share as of December 31, 2023 for Capital One as provided by Capital One management.

Applying these ranges to Capital One’s estimated 2024E earnings per share and Capital One’s tangible book value per share, Centerview’s analysis indicated the following implied equity value per share ranges for the shares of Capital One common stock, as compared to the closing price of Capital One common stock of $137.23 on February 16, 2024.

 

		Implied Equity Value Per Capital One Share
2024E P/E		$125.50 – $153.25
P/TBV Regression		$129.50 – $153.00

Discover Stand-alone Dividend Discount Analysis

Using the Discover Forecasts and the Discover Internal Data, Centerview performed an illustrative discounted dividend analysis for Discover on a stand-alone basis, to derive a range of illustrative present values per share of Discover common stock on a stand-alone basis.

Using discount rates ranging from 12.75% to 13.75%, reflecting estimates of the cost of equity for Discover on a stand-alone basis, Centerview derived a range of illustrative equity values for Discover on a stand-alone basis by discounting to present value as of December 31, 2023, (a) the implied distributions to Discover stockholders over the period beginning January 1, 2024 through December 31, 2030 calculated based on the Discover Forecasts and the Discover Internal Data, which assumed that Discover would make distributions of capital in excess of the amount necessary to achieve a 12.0% CET1 ratio target, (b) a range of illustrative terminal values for Discover as of December 31, 2030, calculated by applying illustrative price to earnings per share multiples ranging from 8.5x to 10.5x to the estimate of Discover’s next twelve (12)-month net income on a stand-alone basis as of December 31, 2030 (calculated by Centerview based upon the terminal year (2030) net income reflected in the Discover Forecasts and Discover Internal Data) and (c) adding on a per share basis the implied net present value of the disposition of the student loan business of Discover of approximately $7.25 per share based on the Discover Forecasts and the Discover Internal Data. To derive illustrative terminal values for Discover, Centerview applied illustrative price to earnings per share multiples based on its professional judgment and experience, taking into account the multiples it calculated as described above in the section entitled “—Selected Public Comparable Companies Analysis.”

Centerview divided the range of illustrative equity values it derived for Discover by the total number of fully diluted shares of Discover common stock outstanding as of February 16, 2024 of 252.5 million, as provided by Capital One management, to derive illustrative present values per share of Discover common stock on a stand-alone basis ranging from $120.50 to $141.75.

Capital One Stand-alone Dividend Discount Analysis

Using the Capital One Internal Data (including the Capital One Forecasts), Centerview performed an illustrative discounted dividend analysis for Capital One on a stand-alone basis, to derive a range of illustrative present values per share of Capital One common stock on a stand-alone basis.

Using discount rates ranging from 12.25% to 13.25%, reflecting estimates of the cost of equity for Capital One on a stand-alone basis, Centerview derived a range of illustrative equity values for Capital One on a stand-alone basis by discounting to present value as of December 31, 2023, (i) the implied distributions to Capital One stockholders over the period beginning January 1, 2024 through December 31, 2030 calculated based on the

 

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Capital One Internal Data (including the Capital One Forecasts), which assumed that Capital One would make distributions of capital in excess of the amount necessary to achieve a 13.0% CET1 ratio target, and (ii) a range of illustrative terminal values for Capital One as of December 31, 2030, calculated by applying illustrative price to earnings per share multiples ranging from 8.5x to 10.5x to the estimate of Capital One’s next twelve (12)-month net income on a stand-alone basis as of December 31, 2030 (calculated by Centerview based upon the terminal year (2030) net income reflected in the Capital One Internal Data (including the Capital One Forecasts)). To derive illustrative terminal values for Capital One, Centerview applied illustrative price to earnings per share multiples based on its professional judgment and experience, taking into account the multiples it calculated as described above in the section entitled “—Selected Public Comparable Companies Analysis.”

Centerview divided the range of illustrative equity values it derived for Capital One by the total number of fully diluted shares of Capital One common stock outstanding as of February 16, 2024 of 392.4 million, as provided by Capital One management, to derive illustrative present values per share of Capital One common stock on a stand-alone basis ranging from $115.00 to $136.75.

Relative Valuation Analysis

Based upon a comparison of the range of implied equity values for each of Discover and Capital One calculated pursuant to the selected comparable public companies analyses and the dividend discount analyses described above (and including, in the case of Discover, on a per share basis, the implied net present value of the disposition of the student loan business of Discover of approximately $7.25 per share based on the Discover Forecasts and Discover Internal Data), Centerview calculated ranges of implied exchange ratios for the mergers. With respect to any given range of exchange ratios, the higher ratio assumes the highest implied value per share of Discover common stock divided by the lowest implied value per share of Capital One common stock, and the lower ratio assumes the lowest implied value per share of Discover common stock divided by the highest implied value per share of Capital One common stock.

 

		Range of Implied Exchange Ratios (excluding Synergies)		Range of Implied Exchange Ratios (including Synergies)
2024 P/E		0.7031x – 1.0359x		1.0913x – 1.5099x
P/TBV Regression		0.6748x – 0.9344x		1.0637x – 1.3938x
Dividend Discount Analysis		0.8812x – 1.2326x		1.3163x – 1.7500x

Centerview then compared the implied ranges of exchange ratios set forth above to the exchange ratio of 1.0192x.

“Has-Gets” Value Creation Analysis

Centerview compared the stand-alone per share value of Capital One to the pro forma per share value of the surviving entity after giving effect to the mergers, including the pro forma ownership of Capital One equityholders of 60.4% as a result of the exchange ratio pursuant to the mergers. Centerview determined the pro forma surviving entity equity value by calculating the sum of (i) the equity value of Capital One using the midpoint value determined in Centerview’s dividend discount analysis, (ii) the equity value of Discover derived using the midpoint value determined in Centerview’s dividend discount analysis and (iii) the net present value of the Synergies. The value creation analysis, at the exchange ratio, yielded accretion to the Capital One stockholders of 19.3% as compared to the Capital One stand-alone value.

Other Factors

Centerview noted for the Capital One board of directors certain additional factors solely for reference and informational purposes only, including, among other things, the following:

 

•

Discover Historical Stock Price Trading Analysis. Centerview reviewed the historical range of trading prices of Discover common stock for the 52-week period ending February 16, 2024, with trading prices ranging from $79.04 to $122.50.

 

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•

Discover Analyst Price Target Analysis. Centerview reviewed analyst share price targets for Discover common stock in recently published, publicly available research analysts’ reports, with share price targets ranging from $104.00 to $137.00.

 

•

Capital One Historical Stock Price Trading Analysis. Centerview reviewed the historical range of trading prices of Capital One common stock for the 52-week period ending February 16, 2024, with trading prices ranging from $83.93 to $140.86.

 

•

Capital One Analyst Price Target Analysis. Centerview reviewed analyst share price targets for Capital One common stock in recently published, publicly available research analysts’ reports, with share price targets ranging from $110.00 to $170.00.

 

•

Premiums Paid Analysis. Centerview performed an analysis of premiums paid in selected transactions with transactions valued greater than $5 billion. Centerview calculated, for each such transaction, the percentage premium represented by the transaction price per share to the target company’s market price per share on the trading day prior to the first public knowledge of the possibility of the Transaction. Based on the analysis above and other considerations that Centerview deemed relevant in its professional judgment, Centerview applied an illustrative range of 10% to 35% to Discover’s closing stock price on February 16, 2024 of $110.49, which resulted in an implied per share equity value range for the shares of Discover common stock of approximately $121.50 to $149.25 per share, rounded to the nearest $0.25.

General

The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. In arriving at its opinion, Centerview did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, Centerview made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

Centerview’s financial analyses and opinion were only one of many factors taken into consideration by the Capital One board of directors in its evaluation of the Transaction. Consequently, the analyses described above should not be viewed as determinative of the views of the Capital One board of directors or management of Capital One with respect to the exchange ratio or as to whether the Capital One board of directors would have been willing to determine that a different consideration was fair. The consideration for the Transaction was determined through arm’s-length negotiations between Capital One and Discover and was approved by the Capital One board of directors. Centerview provided advice to Capital One during these negotiations. Centerview did not, however, recommend any specific amount of consideration to Capital One or the Capital One board of directors or that any specific amount of consideration constituted the only appropriate consideration for the Transaction.

Centerview is a securities firm engaged directly and through affiliates and related persons in a number of investment banking, financial advisory and merchant banking activities. In the two (2) years prior to the date of its written opinion, Centerview had been engaged to provide certain financial advisory services to Capital One, including in connection with certain strategic matters, and Centerview received $3 million in compensation from Capital One for such services. In the two (2) years prior to the date of its written opinion, Centerview had not been engaged to provide financial advisory or other services to Discover, and Centerview did not receive any compensation from Discover during such period. Centerview may provide investment banking and other services to or with respect to Capital One or Discover or their respective affiliates in the future, for which we may receive compensation. Certain (i) of Centerview and its affiliates’ directors, officers, members and employees, or family members of such persons, (ii) of Centerview’s affiliates or related investment funds and (iii) investment funds or other persons in which any of the foregoing may have financial interests or with which they may co-invest, may at any time acquire, hold, sell or trade, in debt, equity and other securities or financial instruments (including derivatives, bank loans or other obligations) of, or investments in, Capital One, Discover, or any of their respective affiliates, or any other party that may be involved in the Transaction.

 

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The Capital One board of directors selected Centerview as its financial advisor in connection with the Transaction based on Centerview’s qualifications, reputation and experience. Centerview is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transaction.

In connection with Centerview’s services as the financial advisor to the Capital One board of directors, Capital One has agreed to pay Centerview an aggregate fee of $42 million, $5 million of which was payable upon the rendering of Centerview’s opinion and the remainder of which is payable contingent upon consummation of the Transaction. In addition, Capital One has agreed to reimburse certain of Centerview’s expenses arising, and to indemnify Centerview against certain liabilities that may arise, out of Centerview’s engagement.

Opinion of Discover’s Financial Advisor

PJT Partners was retained by Discover to act as its financial advisor in connection with the mergers and, upon Discover’s request, to render its fairness opinion to the Discover board of directors in connection therewith. Discover selected PJT Partners to act as its financial advisor based on PJT Partners’ qualifications, expertise and reputation, its knowledge of Discover’s industry and its knowledge and understanding of the business and affairs of Discover. At a meeting of the Discover board of directors on February 19, 2024, PJT Partners rendered its oral opinion, subsequently confirmed in its written opinion dated February 19, 2024, to the Discover board of directors that, as of the date thereof and based upon and subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion (which are stated in its written opinion), the exchange ratio in the mergers was fair to the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)) from a financial point of view.

The full text of PJT Partners’ written opinion delivered to the Discover board of directors, dated February 19, 2024, is attached as Annex C and incorporated into this joint proxy statement/prospectus by reference in its entirety. PJT Partners’ written opinion has been provided by PJT Partners at the request of the Discover board of directors and is subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by PJT Partners in connection with the opinion (which are stated therein). You are encouraged to read the opinion carefully in its entirety. PJT Partners provided its opinion to the Discover board of directors, in its capacity as such, in connection with and for purposes of its evaluation of the mergers only and PJT Partners’ opinion does not constitute a recommendation as to any action the Discover board of directors should take with respect to the mergers or how any Discover stockholder should vote or act with respect to the mergers or any other matter. The following is a summary of PJT Partners’ opinion and the methodology that PJT Partners used to render its opinion. This summary of the PJT Partners opinion contained in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of PJT Partners’ written opinion.

In arriving at its opinion, PJT Partners, among other things:

 

•

reviewed certain publicly available information concerning the business, financial condition and operations of Discover and Capital One;

 

•

reviewed certain internal information concerning the business, financial condition and operations of Discover prepared and furnished to PJT Partners by the management of Discover;

 

•

reviewed certain internal information concerning the business, financial condition and operations of Capital One prepared by the management of Capital One and furnished to PJT Partners by or at the direction of the management of Discover;

 

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•

reviewed certain internal financial analyses, estimates and forecasts relating to Discover, including projections for fiscal years 2024 through 2028 that were prepared by or at the direction of the management of Discover and approved for PJT Partners’ use by the Discover board of directors, which are referred to in this summary of PJT Partners’ opinion as the “Discover Projections”;

 

•

reviewed certain internal financial analyses, estimates and forecasts relating to Capital One, including projections for fiscal years 2024 through 2028 that were prepared by or at the direction of the management of Discover and approved for PJT Partners’ use by the Discover board of directors which are referred to collectively in this joint proxy statement/prospectus as the “Capital One Projections” and, together with the Discover Projections, are referred to in this summary of PJT Partners’ opinion as the “Projections”;

 

•

held discussions with members of senior management of Discover and participated in discussions with members of senior management of Capital One, in each case, concerning, among other things, their evaluation of the mergers and Discover’s and Capital One’s respective businesses, operating and regulatory environments, financial conditions, prospects and strategic objectives;

 

•

reviewed the historical market prices and trading activity for Discover common stock and Capital One common stock;

 

•

reviewed certain transaction synergies estimated by management of Capital One to result from the mergers and the estimated costs to achieve such synergies that were prepared by Capital One and furnished to PJT Partners, and approved for PJT Partners’ use, by the management of Discover, which are collectively referred to in this summary of PJT Partners’ opinion as the “Synergy Estimates”;

 

•

compared certain publicly available financial and stock market data for Discover and Capital One with similar information for certain other companies that PJT Partners deemed to be relevant;

 

•

reviewed a draft, dated February 19, 2024 of the merger agreement; and

 

•

performed such other financial studies, analyses and investigations, and considered such other matters, as PJT Partners deemed necessary or appropriate for purposes of rendering its opinion.

In preparing its opinion, with the consent of the Discover board of directors, PJT Partners relied upon and assumed the accuracy and completeness of the foregoing information and all other information discussed with or reviewed by PJT Partners, without independent verification thereof. PJT Partners assumed, with the consent of the Discover board of directors, that the Projections and the Synergy Estimates and the assumptions underlying the Projections and the Synergy Estimates, and all other financial analyses, estimates and forecasts provided to PJT Partners by Discover’s management, were reasonably prepared in accordance with industry practice and represented Discover’s management’s (or, in the case of the Synergy Estimates, Capital One’s management’s) best currently available estimates and judgments as to the business and operations and future financial performance of Discover and Capital One, as applicable. With the consent of the Discover board of directors, PJT Partners did not take into account any potential changes in the regulatory capital requirements for Discover or Capital One or any potential changes in, or resulting impact on, the regulatory capital requirements of the combined company during the forecast period. PJT Partners assumed no responsibility for and expressed no opinion as to the Projections and the Synergy Estimates, the assumptions upon which they were based or any other financial analyses, estimates and forecasts provided to PJT Partners by Discover’s management or Capital One’s management. PJT Partners also assumed that there were no material changes in the assets, financial condition, results of operations, business or prospects of Discover or Capital One since the respective dates of the last financial statements made available to PJT Partners. PJT Partners relied, with the consent of the Discover board of directors, on Discover’s management’s representations and/or projections regarding taxable income, standalone net operating loss utilization and other tax attributes of Discover. PJT Partners further relied, with the consent of the Discover board of directors, upon the assurances of the management of Discover that they were not aware of any facts that would make the information, representations and projections provided by them or Capital One’s management inaccurate, incomplete or misleading.

 

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PJT Partners was not asked to undertake, and did not undertake, an independent verification of any information provided to or reviewed by it, nor was it furnished with any such verification and it did not assume any responsibility or liability for the accuracy or completeness thereof. PJT Partners did not conduct a physical inspection of any of the properties or assets of Discover or Capital One. PJT Partners did not make an independent evaluation or appraisal of the assets or the liabilities (contingent or otherwise) of Discover or Capital One, nor was it furnished with any such evaluations or appraisals, nor did it evaluate the solvency of Discover or Capital One under any applicable laws.

PJT Partners also assumed, with the consent of the Discover board of directors, that the final executed form of the merger agreement would not differ in any material respects from the draft reviewed by PJT Partners and that the consummation of the mergers would be effected in accordance with the terms and conditions of the merger agreement, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary regulatory or third party consents and approvals (contractual or otherwise) for the mergers, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Discover or Capital One or the contemplated benefits of the mergers. PJT Partners also assumed that the representations and warranties made by Discover and Capital One in the merger agreement and the related agreements were and will be true and correct in all respects material to PJT Partners’ analysis. At the direction of the Discover board of directors, PJT Partners assumed that it was intended for the mergers, taken together, to qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. PJT Partners did not express any opinion as to any tax or other consequences that might result from the mergers, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which PJT Partners understood that Discover obtained such advice as it deemed necessary from qualified professionals. PJT Partners is not a legal, tax or regulatory advisor and relied upon without independent verification the assessment of Discover and its legal, tax and regulatory advisors with respect to such matters.

In arriving at its opinion, PJT Partners was not asked to solicit, and did not solicit, interest from any party with respect to any sale, acquisition, business combination or other extraordinary transaction involving Discover or its assets. PJT Partners did not consider the relative merits of the mergers as compared to any other business plan or opportunity that might be available to Discover or the effect of any other arrangement in which Discover might engage and PJT Partners’ opinion did not address the underlying decision by Discover to engage in the mergers. PJT Partners’ opinion was limited to the fairness of the exchange ratio in the mergers as of the date of the opinion, from a financial point of view, to the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)), and PJT Partners’ opinion did not address any other aspect or implication of the mergers, the merger agreement, or any other agreement or understanding entered into in connection with the mergers or otherwise. PJT Partners further expressed no opinion or view as to the fairness of the mergers to the holders of any other class of securities (including any preferred stock of Discover), creditors or other constituencies of Discover or as to the underlying decision by Discover to engage in the mergers. PJT Partners also expressed no opinion as to the fairness of the amount or nature of the compensation to any of Discover’s officers, directors or employees, or any class of such persons, relative to the merger consideration to be received by the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)) or otherwise.

PJT Partners’ opinion was necessarily based upon economic, market, monetary, regulatory and other conditions as they existed and could be evaluated, and the information made available to PJT Partners, as of the date of the opinion. PJT Partners assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of its opinion. PJT Partners expressed no opinion as to the prices

 

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or trading ranges at which Discover common stock or Capital One common stock would trade at any time, as to the potential effects of volatility in the credit, financial and stock markets on Discover, Capital One or the mergers or as to the impact of the mergers on the solvency or viability of Discover or Capital One or the ability of Discover or Capital One to pay its obligations when they come due.

The issuance of PJT Partners’ opinion was approved by a fairness committee of PJT Partners in accordance with established procedures. PJT Partners’ opinion was provided to the Discover board of directors, in its capacity as such, in connection with and for the purposes of its evaluation of the mergers only and was not a recommendation as to any action the Discover board of directors should take with respect to the mergers or any aspect thereof. PJT Partners’ opinion did not constitute a recommendation to any holder of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)) or any other stockholder of Discover as to how any stockholder should vote or act with respect to the mergers or any other matter.

Summary of Financial Analyses

In connection with rendering its opinion, PJT Partners performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, PJT Partners did not ascribe a specific range of values to the shares of Discover common stock but rather made its determination as to fairness, from a financial point of view, to the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)) of the exchange ratio in the mergers on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, PJT Partners did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the merger. Accordingly, PJT Partners believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

The following is a summary of the material financial analyses used by PJT Partners in preparing its opinion to the Discover board of directors. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by PJT Partners, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. In performing its analyses, PJT Partners made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Discover and Capital One. None of Discover, Capital One, PJT Partners, or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or reflect the prices at which the businesses may actually be sold. The financial analyses summarized below were based on the Projections and Synergy Estimates and other financial information prepared by the management of Discover (or, in the case of the Synergy Estimates, the management of Capital One) and furnished to PJT Partners by or on behalf of the management of Discover, and used at the direction of the management of Discover and approved for PJT Partners’ use, in the case of the Projections and

 

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other financial information, by the Discover board of directors, and in the case of the Synergy Estimates, by the management of Discover. The following summary does not purport to be a complete description of the financial analyses performed by PJT Partners. The following quantitative information, to the extent that it is based on market data, is based on market data as it existed, for Discover and Capital One, based on the closing trading price on February 16, 2024 (which represented the last trading day for Discover common stock and Capital One common stock prior to the date of PJT Partners’ opinion), and is not necessarily indicative of current or future market conditions. Fully diluted share numbers for Discover and Capital One used below were provided by, and used at the direction of, Discover’s management.

Selected Comparable Company Analysis – Discover

PJT Partners reviewed and compared specific financial, operating and public trading data relating to Discover with selected publicly traded (i) credit card and consumer-focused banks and (ii) regional banks that PJT Partners deemed comparable to Discover. The selected comparable companies (which we refer to collectively as the “Discover Peers”) for (i) the credit card and consumer-focused banks were American Express Company, Ally Financial, Capital One and Synchrony Financial and (ii) the regional banks were Citizens Financial Group, Inc., Fifth Third Bancorp, First Citizens Bancshares, Inc., Huntington Bancshares Incorporated, KeyCorp, M&T Bank Corporation and Regions Financial Corporation. PJT Partners reviewed and compared such data in order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of Discover common stock on a standalone basis, in each case by reference to these companies.

As part of its selected comparable company analysis, PJT Partners calculated and analysed certain ratios and multiples, including: (1) stock price as a multiple of calendar year 2024E earnings per share for each such selected comparable company, which is referred to in this summary of PJT Partners’ opinion as “P / 2024E EPS” and (2) stock price as a multiple of the tangible book value per share of each selected comparable company’s common stock as of such selected comparable company’s most recent quarter, which is referred to in this summary of PJT Partners’ opinion as “P / TBVPS.” All of these calculations were performed and based on publicly available financial data, market data (including share prices) as of the close of trading on February 16, 2024 and consensus estimates derived from sell-side research. The results of this selected comparable company analysis are summarized below:

 

Discover Peers (Credit Card and Consumer- Focused Banks)

Discover Peers (Credit Card and Consumer- Focused Banks)

Discover Peers (Regional Banks)

Discover Peers (Regional Banks)

Low

High

Low

High

P / 2024E EPS

7.1x

16.5x

8.6x

11.9x

P / TBVPS

1.08x

7.60x

1.02x

1.92x

PJT Partners selected the comparable companies listed above because PJT Partners believed their businesses and operating profiles are reasonably similar to that of Discover. However, because of the inherent differences between the business, operations and prospects of Discover and those of the selected comparable companies, PJT Partners believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, PJT Partners also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Discover and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Discover and the companies included in the selected company analysis.

Accordingly, PJT Partners selected (1) a P / 2024E EPS multiple range of 8.5x to 10.5x and (2) a P / TBVPS multiple range of 1.80x to 2.20x, in each case for Discover on a standalone basis. PJT Partners then applied the applicable ranges to Discover’s calendar year 2024E earnings per share based on the Discover Projections and

 

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Discover’s tangible book value per share as of Discover’s most recent quarter, to calculate a range of implied equity values per share of Discover common stock on a standalone basis based on the fully diluted number of shares of Discover common stock as of February 18, 2024. The following summarizes the results of these calculations:

 

		Implied equity values per share of Discover common stock
P / 2024E EPS		$	101.77 – $125.72
P / TBVPS		$	97.27 – $118.89

Selected Comparable Company Analysis – Capital One

PJT Partners reviewed and compared specific financial, operating and public trading data relating to Capital One with selected publicly traded (i) credit card and consumer-focused banks and (ii) super-regional and regional banks that PJT Partners deemed comparable to Capital One. The selected comparable companies (which we refer to collectively as the “Capital One Peers”) for (i) the credit card and consumer-focused banks were American Express Company, Ally Financial, Discover and Synchrony Financial and (ii) the super-regional and regional banks were Citizens Financial Group, Inc., Fifth Third Bancorp, First Citizens Bancshares, Inc., M&T Bank Corporation, Truist Financial Corporation, PNC Financial Services Group and U.S. Bancorp. PJT Partners reviewed and compared such data in order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of Capital One common stock on a standalone basis, in each case by reference to these companies.

As part of its selected comparable company analysis, PJT Partners calculated and analysed certain ratios and multiples, including: (1) P / 2024E EPS and (2) P / TBVPS. All of these calculations were performed and based on publicly available financial data, market data (including share prices) as of the close of trading on February 16, 2024 and consensus estimates derived from sell-side research. The results of this selected comparable company analysis are summarized below:

 

Capital One Peers (Credit Card and Consumer-Focused Banks)

Capital One Peers (Credit Card and Consumer-Focused Banks)

Capital One Peers (Super-Regional and Regional Banks)

Capital One Peers (Super-Regional and Regional Banks)

Low

High

Low

High

P / 2024E EPS

7.1x

16.5x

8.6x

12.0x

P / TBVPS

1.08x

7.60x

1.02x

1.92x

PJT Partners selected the comparable companies listed above because PJT Partners believed their businesses and operating profiles are reasonably similar to that of Capital One. However, because of the inherent differences between the business, operations and prospects of Capital One and those of the selected comparable companies, PJT Partners believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, PJT Partners also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Capital One and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Capital One and the companies included in the selected company analysis.

Accordingly, PJT Partners selected (1) a P / 2024E EPS multiple range of 8.0x to 10.0x and (2) a P / TBVPS multiple range of 1.15x to 1.45x, in each case for Capital One on a standalone basis. PJT Partners then applied the applicable ranges to Capital One’s calendar year 2024E earnings per share based on the Capital One Projections and Capital One’s tangible book value per share as of Capital One’s most recent quarter, to calculate a range of implied equity values per share of Capital One common stock on a standalone basis based on the fully

 

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diluted number of shares of Capital One common stock as of February 18, 2024. The following summarizes the results of these calculations:

 

		Implied equity values per share of Capital One common stock
P / 2024E EPS		$	106.72 – $133.40
P / TBVPS		$	114.75 – $144.68

Selected Comparable Company Analysis – Implied Exchange Ratio

Based on the range of implied equity values per share of Discover common stock and the range of implied equity values per share for Capital One common stock that was calculated by PJT Partners in its selected comparable company analyses, PJT Partners calculated a range of implied exchange ratios of Capital One common stock per each share of Discover common stock. PJT Partners calculated the low end of the implied exchange ratio range by dividing the low value of Discover implied equity values per share reference range by the high value of the Capital One implied equity values per share reference range. PJT Partners calculated the high end of the implied exchange ratio range by dividing the high value of Discover implied equity values per share reference range by the low value of the Capital One implied equity values per share reference range. The result of this analysis, as compared to the exchange ratio of 1.0192x provided in the merger agreement, is summarized below:

 

		Implied Exchange Ratio
P / 2024E EPS			0.7629x – 1.1780x
P / TBVPS			0.6723x – 1.0361x

Dividend Discount Analysis – Discover

In order to estimate the present value of Discover common stock, PJT Partners performed a dividend discount analysis of Discover. A dividend discount analysis is a traditional valuation methodology used to derive a company’s implied equity value per share by calculating the “present value” of the sum of all of a company’s future dividendable cash flows available to common stockholders. “Present value” refers to the current value of future dividends and is obtained by discounting those future dividendable cash flows by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

To calculate the estimated present value of Discover common stock using the dividend discount method, PJT Partners added (i) Discover’s projected dividendable cash flows for the calendar years 2024 through 2027 based on the Discover Projections to (ii) ranges of “terminal values” of Discover as of December 31, 2027, and discounted such amounts to their present values using a range of selected discount rates. The projected dividendable cash flows were calculated as the excess capital available for common stockholder distribution based on Discover’s projected risk-weighted assets, target CET1 ratio and net income applicable to common stockholders from the Discover Projections. The residual value of the total divendable cash flows at the end of the projection period, or “terminal value,” was estimated by applying the exit multiple range of 8.5x to 10.5x to Discover’s calendar year 2028E net income based on the Discover Projections. The range of discount rates of 11.0% to 13.0% was selected based on PJT Partners’ analysis of the cost of equity of Discover. PJT Partners then calculated a range of implied equity values per share of Discover common stock by dividing the sum of the amount derived from (i) and (ii) above by the fully diluted number of shares of Discover common stock as of February 18, 2024. The following summarizes the results of these calculations:

 

		Implied equity values per share of Discover common stock
		Low				High
Dividend Discount Analysis		$	117.46			$	145.00

 

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Dividend Discount Analysis – Capital One

In order to estimate the present value of Capital One common stock, PJT Partners performed a dividend discount analysis of Capital One.

To calculate the estimated present value of Capital One common stock using the dividend discount method, PJT Partners added (a) Capital One’s projected dividendable cash flows for the calendar years 2024 through 2027 based on the Capital One Projections to (b) ranges of “terminal values” of Capital One as of December 31, 2027, and discounted such amounts to their present values using a range of selected discount rates. The projected dividendable cash flows were calculated as the excess capital available for common stockholder distribution based on Capital One’s projected risk-weighted assets, target CET1 ratio and net income applicable to common stockholders from the Capital One Projections. The residual value of the total divendable cash flows at the end of the projection period, or “terminal value,” was estimated by applying the exit multiple range of 8.0x to 10.0x to Capital One’s calendar year 2028E net income based on the Capital One Projections. The range of discount rates of 11.0% to 13.0% was selected based on PJT Partners’ analysis of the cost of equity of Capital One. PJT Partners then calculated a range of implied equity values per share of Capital One common stock by dividing the sum of the amount derived from (a) and (b) above by the fully diluted number of shares of Capital One common stock as of February 18, 2024. The following summarizes the results of these calculations:

 

		Implied equity values per share of Capital One common stock
		Low				High
Dividend Discount Analysis		$	128.37			$	158.16

Dividend Discount Analysis – Implied Exchange Ratio

Based on the range of implied equity values per share of Discover common stock and the range of implied equity values per share for Capital One common stock that was calculated by PJT Partners in its dividend discount analyses, PJT Partners calculated a range of implied exchange ratios of Capital One common stock per each share of Discover common stock. PJT Partners calculated the low end of the implied exchange ratio range by dividing the low value of Discover implied equity values per share reference range by the high value of Capital One implied equity values per share reference range. PJT Partners calculated the high end of the implied exchange ratio range by dividing the high value of Discover implied equity values per share reference range by the low value of the Capital One implied equity values per share reference range. The result of this analysis, as compared to the exchange ratio of 1.0192x provided in the merger agreement, is summarized below:

 

		Implied Exchange Ratio
Dividend Discount Analysis			0.7427x – 1.1296x

General

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying PJT Partners’ opinion. In arriving at its fairness determination, PJT Partners considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, PJT Partners made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company used in the above analyses as a comparison is directly comparable to Discover or Capital One. The terms of the merger agreement, including the exchange ratio, were determined through arm’s-length negotiations between Discover and Capital One, rather than PJT Partners, and the decision to enter into the merger agreement was solely that of Discover and Capital One.

 

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PJT Partners prepared these analyses for purposes of providing its opinion to the Discover board of directors as to the fairness from a financial point of view, as of the date of the written opinion of PJT Partners, of the exchange ratio in the mergers to the holders of Discover common stock (excluding the shares of Discover common stock owned by Discover or Capital One (in each case excluding the shares of Discover common stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties or (ii) held, directly or indirectly, by Discover or Capital One in respect of debts previously contracted)). These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Discover, Capital One, PJT Partners or any other person assumes responsibility if future results are materially different from those forecast.

PJT Partners is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Discover selected PJT Partners to act as its financial advisor because of its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally and in the financial services sector specifically.

PJT Partners is acting as financial advisor to Discover in connection with the mergers. As compensation for its services in connection with the mergers, PJT Partners is entitled to receive from Discover an aggregate fee of $48 million, $10 million of which became payable upon the delivery of PJT Partners’ opinion to the Discover board of directors and the remainder of which is contingent and payable upon the consummation of the mergers. Discover has agreed to reimburse PJT Partners for out-of-pocket expenses and to indemnify PJT Partners for certain liabilities arising out of the performance of such services (including the rendering of PJT Partners’ opinion).

In the ordinary course of PJT Partners and its affiliates’ businesses, PJT Partners and its affiliates may provide investment banking and other financial services to Discover, Capital One or their respective affiliates and may receive compensation for the rendering of these services. During the two (2) years preceding the date of its opinion, PJT Partners (i) has not advised or received compensation from Discover and (ii) advised a creditor group in which Capital One was a member, for which PJT Partners received fees paid by a third party.

Certain Unaudited Prospective Financial Information

Capital One and Discover do not, as a matter of course, publicly disclose forecasts or internal projections as to their respective future performance, revenues, earnings, financial condition or other results given, among other reasons, the inherent uncertainty of the underlying assumptions and estimates, other than, in the case of Discover from time to time, estimated ranges of certain expected financial measures for the current year and certain future years in regular earnings conference calls, investor conference presentations, press releases and other investor materials.

However, Capital One and Discover are including in this joint proxy statement/prospectus certain unaudited prospective financial information (which we refer to collectively as the “prospective financial information”), with respect to Capital One and Discover on a standalone basis and without giving effect to the mergers (except as expressly set forth below in the section entitled “—Certain Estimated Synergies Attributable to the Mergers”). A summary of certain significant elements of this information is set forth below and is included in this joint proxy statement/prospectus solely for the purpose of providing Capital One stockholders and Discover stockholders

 

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access to certain nonpublic information made available to Capital One and Discover and their respective boards of directors and financial advisors.

Neither Capital One nor Discover endorses the prospective financial information as necessarily predictive of actual future results. Furthermore, although presented with numerical specificity, the prospective financial information reflects numerous estimates and assumptions made by Capital One’s senior management, Discover’s senior management or Wall Street research analysts, as applicable, at the time such prospective financial information, as applicable, was prepared or approved for use by the financial advisors in connection with the financial advisors’ respective financial analyses and opinions as described in this joint proxy statement/prospectus under “—Opinion of Capital One’s Financial Advisor” and “—Opinion of Discover’s Financial Advisor.” The prospective financial information represents, as applicable, Capital One’s senior management’s evaluation, Discover’s senior management’s evaluation or Wall Street research analysts’ evaluation, of Capital One’s expected future financial performance on a standalone basis or Discover’s expected future financial performance on a standalone basis, as applicable, without reference to the mergers (except as expressly set forth in the section entitled “—Certain Estimated Synergies Attributable to the Mergers”). In addition, since the prospective financial information covers multiple years, such information by its nature becomes subject to greater uncertainty with each successive year. These and the other estimates and assumptions underlying the prospective financial information involve judgments with respect to, among other things, economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industries in which Capital One and Discover operate and the risks and uncertainties described under the sections entitled “Risk Factors” beginning on page 30 of this joint proxy statement/prospectus and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27 of this joint proxy statement/prospectus and in the reports that Capital One and Discover file with the SEC from time to time, all of which are difficult to predict and many of which are outside the control of Capital One and Discover and will be beyond the control of Capital One following the completion of the mergers. There can be no assurance that the underlying assumptions or projected results will be realized, and actual results could differ materially from those reflected in the prospective financial information, whether or not the mergers are completed. Further, these assumptions do not include all potential actions that the senior management of Capital One or Discover could or might have taken during these time periods. The inclusion in this joint proxy statement/prospectus of the prospective financial information below should not be regarded as an indication that Capital One, Discover or their respective boards of directors or advisors considered, or now consider, this prospective financial information to be material information to any Capital One stockholders or Discover stockholders, as the case may be, particularly in light of the inherent risks and uncertainties associated with such prospective financial information.

The prospective financial information should not be construed as financial guidance, and it should not be relied on as such. This information was prepared solely for internal use and is subjective in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. The prospective financial information is not fact and should not be relied upon as necessarily indicative of actual future results. The prospective financial information also reflects numerous variables, expectations and assumptions available at the time it was prepared as to certain business decisions that are subject to change. Except as expressly set forth below in the section entitled “—Certain Estimated Synergies Attributable to the Mergers”, the prospective financial information does not take into account the transactions contemplated by the merger agreement or the possible financial and other effects on Capital One or Discover of the mergers, and does not attempt to predict or suggest actual future results of Capital One following the completion of the mergers or give effect to the mergers, including the effect of negotiating or executing the merger agreement, the costs that may be incurred in connection with consummating the mergers, the potential synergies that may be achieved by Capital One as a result of the mergers (except as expressly set forth below in the section entitled “—Certain Estimated Synergies Attributable to the Mergers”), the effect on Capital One or Discover of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would

 

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likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the mergers. Further, the prospective financial information does not take into account the effect of any possible failure of the mergers to occur. The prospective financial information does not take into account any circumstances or events that have occurred after the date it was prepared and no assurances can be given that if the prospective financial information and the underlying assumptions had been prepared as of the date of this joint proxy statement/prospectus, similar assumptions would be used. In addition, the prospective financial information may not reflect the manner in which Capital One would operate after the mergers.

The prospective financial information, to the extent prepared by Discover’s or Capital One’s senior management, was not prepared for the purpose of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, published guidelines of the SEC regarding forward-looking statements or generally accepted accounting principles.

Subject to the above, the prospective financial information included in this section has been provided by Capital One’s management and Discover’s management as described in this section. Neither Ernst & Young LLP (as Capital One’s independent registered public accounting firm) nor Deloitte & Touche LLP (as Discover’s independent registered public accounting firm) nor any other independent registered public accounting firm, has audited, reviewed, examined, compiled or applied agreed-upon procedures with respect to the prospective financial information and, accordingly, Ernst & Young LLP and Deloitte & Touche LLP do not express an opinion or any other form of assurance with respect thereto. The reports by Ernst & Young LLP and Deloitte & Touche LLP incorporated by reference in this joint proxy statement/prospectus relate to Capital One’s and Discover’s previously issued financial statements. They do not extend to the prospective financial information and should not be read to do so.

Capital One Prospective Financial Information

Capital One Prospective Financial Information Used by Centerview

The following table presents the forecasts of Capital One’s 2024 through 2030 net income after taxes (“NIAT”) available to common stockholders and risk-weighted assets that were used by Centerview at the direction of Capital One management in the financial analyses performed in connection with Centerview’s opinion:

 

		Capital One Standalone Prospective Financial Information
		2024E				2025E				2026E				2027E				2028E				2029E				2030E
Income Statement
NIAT to Common ($ billions)		$	5.3			$	6.1			$	6.2			$	6.4			$	6.5			$	6.7			$	6.9
Capital
Risk-Weighted Assets ($ billions)		$	382.0			$	395.3			$	409.1			$	423.4			$	438.3			$	453.7			$	469.8

The above forecasts of Capital One’s 2024 and 2025 NIAT available to common stockholders and risk-weighted assets represent consensus Wall Street research estimates of those measures (the “Capital One street estimates”). The above forecasts of Capital One’s 2026 through 2030 NIAT available to common stockholders and risk-weighted assets represent forecasts extrapolated from the Capital One street estimates.

Based on the prospective financial information described above, for purposes of Centerview’s financial analysis, estimated after-tax cash flows available at Capital One for distributions to Capital One stockholders for 2024 through 2030 were calculated by Centerview to be $3.6 billion, $4.4 billion, $4.4 billion, $4.5 billion, $4.6 billion, $4.7 billion and $4.8 billion, in each case representing the amount by which estimated NIAT available to Capital One stockholders for the applicable year (based on the prospective financial information described above) exceeded the amount required to meet an estimated CET1 ratio of 13.0% over the applicable period, as described in the section entitled “—Opinion of Capital One’s Financial Advisor.”

 

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Capital One Prospective Financial Information Used by PJT Partners

The following table presents the forecasts of Capital One’s 2024 through 2028 NIAT available to common stockholders, total loans, risk-weighted assets and total capital return that were used by PJT Partners at the direction of Discover’s management, and approved for PJT Partners’ use by the Discover board of directors, in the financial analyses performed in connection with PJT Partners’ opinion as described in this joint proxy statement/prospectus under “—Opinion of Discover’s Financial Advisor”:

 

		Capital One Standalone Prospective Financial Information Used by PJT Partners
		2024E				2025E				2026E				2027E				2028E
Income Statement
NIAT to Common ($ billions)		$	5.1			$	5.7			$	6.2			$	6.6			$	7.0
Ending Balance Sheet
Total Loans ($ billions)		$	335.0			$	351.7			$	369.3			$	387.8			$	407.1
Capital
Risk-Weighted Assets ($ billions)		$	382.5			$	401.6			$	421.7			$	442.8			$	464.9
Total Capital Return ($ billions)		$	2.2			$	3.9			$	4.2			$	4.5			$	4.8

The above forecasts of Capital One’s 2024 through 2028 NIAT available to common stockholders, total loans, risk-weighted assets and total capital return represent Discover’s management’s estimates of those measures.

Discover Prospective Financial Information

Discover Prospective Financial Information Used by Centerview

The following table presents the forecasts of Discover’s 2024 through 2030 NIAT available to common stockholders and risk-weighted assets that were used by Centerview at the direction of Capital One management in the financial analyses performed in connection with Centerview’s opinion:

 

		Discover Standalone Prospective Financial Information Used by Centerview
		2024E				2025E				2026E				2027E				2028E				2029E				2030E
Income Statement
NIAT to Common ($ billions)		$	3.6	(1)		$	3.0			$	3.3			$	3.5			$	3.8			$	4.3			$	4.4
Capital
Risk-Weighted Assets ($ billions)		$	120.9			$	124.5			$	128.3			$	134.3			$	140.6			$	147.3			$	154.2

 

(1)	2024E NIAT to Common includes one-time items from private student loan portfolio exit.

The above forecasts of Discover’s 2024 and 2025 NIAT available to common stockholders and risk-weighted assets represent consensus Wall Street research estimates of those measures, as adjusted at to reflect the completion, in 2024, of Discover’s previously announced disposition of its private student loan portfolio and to reflect charge-offs in 2024 consistent with consensus Wall Street research estimates and charge-offs in 2025 consistent with those in 2024 (the “Discover adjusted street estimates”). The above forecasts of Discover’s 2026 through 2030 NIAT available to common stockholders and risk-weighted assets represent forecasts extrapolated from the Discover adjusted street estimates.

Based on the prospective financial information described above, for purposes of Centerview’s financial analysis, estimated after-tax cash flows available at Discover for distributions to Discover stockholders for 2024 through 2030 were calculated by Centerview to be $2.8 billion (excluding a one-time capital benefit as a result of the one-time net income and capital impact from private student loan portfolio exit in 2024), $2.6 billion, $2.8 billion, $2.7 billion, $3.1 billion, $3.5 billion and $3.6 billion, in each case representing the amount by

 

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