Although Capital One’s proposed acquisition of Discover has sparked antitrust concern, legal experts who specialize in antitrust law don't see much legal standing for the Justice Department to block the deal.
“For this to be a concern about monopolization or a significant reduction in competition, you’d typically need bigger shares of market than you’ve got, with Discover on the network side of things, and Capital One on the card issuing side,” said Barry Barnett, an antitrust lawyer and partner at Susman Godfrey. “It seems kind of too small to be a core antitrust concern.”
The $35.3 billion proposed acquisition, announced in February, would make McLean, Virginia-based Capital One the largest credit card issuer in the U.S., giving it a 19% share of the revolving consumer loan market, eclipsing JPMorgan Chase’s 16%.
The tie-up would also make Capital One the sixth-largest U.S. bank by assets. Riverwoods, Illinois-based Discover, meanwhile, is the fourth-largest network, far behind Visa, Mastercard and American Express. Capital One has leaned into the argument that the acquisition would give Discover a boost in that competition.
The Federal Reserve and the Office of the Comptroller of the Currency are reviewing the deal. Meanwhile, Capital One executives reiterated last month that they expect the deal to be completed late this year or early next year, pending regulatory approvals.
Capital One CEO Richard Fairbank said in April that the company was in contact with the DOJ over the proposed acquisition, as that agency advises bank regulators that are reviewing potential tie-ups with an eye toward competition.
The DOJ’s review would consider potential changes in market share and whether the combination would result in a substantial reduction in competition, Barnett said. In June 2023, Jonathan Kanter, the DOJ’s assistant attorney general for antitrust, said the agency was expanding its scrutiny of bank mergers to include a broader scope of factors such as fees, interest rates and customer service.
Kanter and his team have been especially concerned about a potential acquisition’s effect on workers, and whether a particular purchase is part of a broader rolling up or series of acquisitions that results in fewer competitors over time, Barnett noted.
Kanter’s division will either inform Capital One and Discover that it doesn’t oppose the merger, or give the companies a chance to explain in a face-to-face meeting why the deal should go through before filing an action to block it, Barnett said.
The division’s pre-merger review can last a year or more, especially with a deal such as this one that raises competition questions in a number of markets.
“People have trouble understanding antitrust cases, period,” Barnett said, “and this one is more complicated.”
Additionally, the November election looms, and its outcome may affect the DOJ’s antitrust division.
Antitrust concerns are just one form of pushback challenging the deal. Dozens of advocacy groups made comments at a public hearing last month hosted by the Fed and the OCC, with some commenters asserting that the deal would harm certain communities. Days before the meeting, Capital One announced a five-year, $265 billion community benefits plan designed to sweeten the deal.
Barnett said he expects the DOJ would have made a move by now if it intended to block the deal. The DOJ declined to comment Thursday. Capital One didn’t immediately respond to a request for comment.
For the government to successfully block the merger, the DOJ would have to show demonstrable anti-competitive effects, which would be difficult, said Barak Orbach, a professor of law and business at the University of Arizona’s James E. Rogers College of Law.
“Today, many people, including the agencies, have a strong feeling that large companies should not grow any larger, that big is inherently wrong,” said Orbach, who specializes in antitrust and corporate governance. “But antitrust is purely about competition; it’s not about size.”
Critics of the deal have warned that Capital One may raise prices for merchants or consumers.
But Orbach said a plausible explanation would be needed in court to back up that assertion.
“I don’t think that there’s any legal ground for the United States to block it,” Orbach said, adding that he wonders whether European Union or U.K. regulatory agencies, or state attorneys general, will have anything to say about the deal.
Even if the DOJ doesn’t take aim at the merger, it has to pass muster with the Fed and OCC. Bank regulatory agencies have taken steps in recent months to revise their merger review processes, after the Biden administration demanded “more robust scrutiny” of bank mergers.
