Does It Make Sense For Capital One To Acquire Synchrony?

-0.67%
Downside
136
Market
135
Trefis
COF: Capital One Financial logo
COF
Capital One Financial

  • Synchrony Financial is the 8th largest credit card issuer in the U.S. [1]
  • Single largest provider of private-label cards in the country

Why Capital One would be interested in acquiring Synchrony:

  1. Move aligned with Capital One’s history of expanding its card business through a combination of organic growth and targeted acquisitions
  2. A deal would make Capital One one of the country’s top 3 card issuers alongside Citigroup and JPMorgan
  3. After limited success in the private-label card segment over recent years, Capital One would gain a significant share of the market
  4. Acquisition would be accretive for Capital One, provided the purchase price remains below $35 a share (~30% higher than current market price)

A deal would face some hurdles though:

  1. Regulators would closely scrutinize (and could also block) a potential deal given Capital One’s sizable asset base in an environment not favorable towards too-big-to-fail banks
  2. Capital One would likely have to issue more shares to raise capital for the acquisition. The currently depressed level of Capital One’s share price could considerably dilute the stake of existing shareholders.
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The calculations assume that all cost synergies are realized immediately on acquisition. EBT Margin would likely witness gains as most of Synchrony’s overhead costs would be eliminated, and total employee costs would fall from the integration of Synchrony’s business with Capital One’s card unit.

See the links below for more information and analysis about Capital One:

Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to the full Trefis analysis for Capital One

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Notes:
  1. U.S. Card Industry Statistics, Creditcards.com []