Capital One headquarters in McLean, Virginia on February 20, 2024.\u00a0<\/p>\n
Brendan Smialowski | AFP | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Capital One<\/a><\/span><\/span><\/span>‘s blockbuster takeover proposal<\/a> for Discover Financial<\/a><\/span><\/span><\/span> includes a $1.38 billion breakup fee if Discover decides to go with another buyer, but no such fee if U.S. regulators kill the deal, people with knowledge of the matter told CNBC.<\/p>\n Capital One said late Monday it had an agreement<\/a> to purchase rival credit card player Discover<\/a> in an all-stock transaction valued at $35.3 billion.<\/p>\n While Discover can’t actively solicit alternative offers, it can entertain proposals from other deep-pocketed bidders before shareholders vote on the transaction.<\/p>\n In the unlikely event that Discover decides to go with another offer, it would owe Capital One $1.38 billion, which aligns with the typical breakup fee in bank deals of between 3% and 4% of the transaction’s value, said the people.<\/p>\n Breakup fees are an industry practice designed to motivate both sides of an acquisition to close the transaction. They can result in massive payouts when deals sour, like the estimated $6 billion AT&T paid to T-Mobile<\/a> after giving up its 2011 takeover effort because of opposition from the U.S. Department of Justice.<\/p>\n Watchers of the Capital One agreement are taking particular interest in whether U.S. banking regulators will allow it to happen. Regulators have blocked deals across industries in recent years on antitrust grounds, and getting a transaction done during an election year in an environment considered hostile to bank mergers has been called uncertain.<\/p>\n Neither side will owe the other a breakup fee if regulators block the acquisition, which is said to be typical for bank deals. Still, last year Canadian lender TD Bank agreed to pay $225 million to First Horizon<\/a> after its takeover collapsed amid regulatory scrutiny of the larger firm.<\/p>\n