Capital One announced the largest acquisition of the year yesterday, stating that it would acquire Discover in an all-stock deal valued at $35.3B. It would offer a premium of approximately 27% to Discover shareholders, and create the largest credit card company in the US in terms of loan volume. 

"Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies," said Richard Fairbank, who is Capital One’s Founder, Chairman, and CEO. "Through this combination, we're creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants, and shareholders as technology continues to transform the payments and banking marketplace."

An acquisition, Capital One says, could reduce expenses by $1.5B by 2027, and generate “network synergies” of $1.2B by that same time. In part, this would be accomplished by using the Discover network as a card carrier, reducing interchange fees and pressuring Visa and Mastercard to offer more favorable rates. Through the Discover merchant network, Capital One would also be able to lower the amount that merchants are charged when consumers swipe a Capital One/Discover card. 

But critics are skeptical that the value of these savings will be evenly distributed, providing material benefits to consumers—not just businesses or investors. The acquisition announcement comes right on the heels of vocal regulatory concerns over mergers and acquisitions as well as the state of the credit-card industry. Last month, the Office of the Comptroller of the Currency said it would slow its M&A approval process; and the Consumer Financial Protection Bureau published a study claiming that larger credit-card issuers offered higher fees and less favorable terms than their smaller competitors. 

What’s more, Discover and Capital One have faced major fines and enforcement actions over the past five years due to compliance failures and “egregious” failures. That troubling record, in addition to the antitrust implications of the merger, may cause the proposed deal to die on the vine. 

Yet regulators are in a double bind. The antitrust concerns are real—as is the potential for this acquisition to disrupt the Visa-Mastercard duopoly. Will regulators green-light the acquisition with those externalities in mind, or will they veto it: doing so in the name of antitrust concerns but leaving a duopoly untouched? 

Recently scuttled big-ticket acquisitions like JetBlue’s proposed Spirit purchase may function as canaries in the coal mine. In that case, Capital One and Discovery should draft serious contingency plans—and potentially prepare for tanking stock prices in the wake of a veto.