Investing.com -- Shares of Discover Financial Services (NYSE: NYSE:DFS) and Capital One Financial (NYSE: COF) fell sharply, down 7% and 4% respectively, amid reports suggesting potential antitrust concerns over Capital One’s proposed acquisition of Discover. The Department of Justice (DOJ) staff is said to have found the deal could be anticompetitive in the subprime sector, according to a Capitol Forum report.
The market’s reaction follows a statement from a Bloomberg Intelligence analyst, Ben Elliott, who addressed the unconfirmed Capitol Forum report. Elliott noted, "An unconfirmed Capitol Forum report that the Department of Justice may oppose Capital One’s purchase of Discover Financial due to potential harm to the subprime sector doesn’t mean the deal is dead. If the DOJ sued, the companies have strong arguments that the deal’s pro-competitive aspects -- creating a stronger network to rival Mastercard (NYSE:MA), Visa (NYSE:V) and American Express (NYSE:AXP) -- outweigh potential harm to subprime borrowers."
Despite the drop in stock prices, a Capital One Financial Corp (NYSE:COF). representative remains optimistic about the acquisition’s approval. In a statement to Bloomberg after the decline in shares, the spokesperson for Capital One said, "Our announced deal with Discover Financial complies with the Bank Merger Act’s legal requirements," and that the company is "well-positioned to gain approval" for the $35 billion deal.
Investors appear to be weighing the potential risks of the DOJ’s opposition against the benefits that the acquisition could bring. The deal, if approved, would position the combined entity as a more formidable competitor against the likes of Mastercard, Visa, and American Express. However, the concerns raised by DOJ staff highlight the regulatory hurdles that such mergers must overcome, especially in sectors sensitive to antitrust issues like subprime lending.
The market’s response reflects the uncertainty that such regulatory scrutiny can cause, with both Discover and Capital One shares experiencing a significant drop as investors reassess the likelihood of the deal’s successful completion. The situation remains fluid, and further developments will likely continue to influence the companies’ stock performance in the near term.
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