Capitalizing On Capital One: Potential Merger Arb Returns With Discover Acquisition


  • Capital One’s proposed acquisition of Discover Financial currently offers a 15.2% merger arbitrage premium (plus dividends) in DFS shares for investors willing to wait for the deal to close.
  • Merger arbitrage allows investors to profit from the price difference between the announcement of a deal and its closing.
  • With higher rates and a healthy amount of M&A activity, some solid merger arb opportunities currently exist in the market for investors willing to bear antitrust risk.
  • High-profile investors like Warren Buffett have quietly practiced merger arbitrage for decades.
Capital One To Purchase Discover Financial

Joe Raedle/Getty Images News

“Give a man a fish and you feed him for a day. Teach him how to arbitrage and you feed him forever.”

-Warren Buffett, 1988 annual letter to shareholders.

Capital One (NYSE:COF) made headlines this year after announcing

Analyst’s Disclosure: I/we have a beneficial long position in the shares of DFS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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