Business Context and Reporting Period
Company: Capital One Financial Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: June 16, 2011
Event: Entry into a Material Definitive Agreement (Purchase and Sale Agreement).
On June 16, 2011, Capital One Financial Corporation entered into an agreement to acquire substantially all of the ING Direct business in the United States from ING Groep N.V. and its affiliates (the "Sellers").
Key Financial Metrics and Transaction Terms
The filing details the structure of the acquisition rather than the company's ongoing operational financials (revenue, profit, cash flow) for the period.
- Total Consideration: $6.2 billion in cash plus 55,921,710 shares of Capital One common stock.
- Share Issuance Limit: The issuance of shares is capped at 9.9% of Capital One's outstanding shares at closing; any excess will be substituted with cash.
- Termination Fee: Capital One is obligated to pay a $270 million termination fee to the Sellers if the agreement is terminated under specific circumstances related to a failure to receive requisite regulatory approvals (excluding failures attributable to the Sellers).
- Asset Replacement: Sellers agreed to replace Illiquid Assets Back-up Facility (IABF) arrangements with cash prior to closing at no additional cost to Capital One.
Material Changes and Transaction Conditions
The transaction is subject to customary closing conditions, including:
- Receipt of required regulatory approvals without materially burdensome conditions.
- A written determination from the Federal Reserve that the Sellers will not "control" Capital One under the Bank Holding Company Act and Savings and Loan Holding Company Act, subject to customary passivity commitments.
- Completion of the IABF Transactions (replacement of illiquid assets with cash).
- Execution of ancillary agreements, including a Shareholders Agreement.
Outlook, Management Commentary, and Risks
Shareholders Agreement: Upon closing, the Sellers will have the right to designate one nominee to Capital One's board of directors until the earlier of one year post-closing or the sale of more than 33% of the acquired shares. Sellers are restricted from transferring shares for 90 days post-closing or 180 days post-certain public offerings, whichever is later.
Non-Compete Covenants:
- Sellers: Restricted for five years from operating retail deposit, online securities brokerage, mortgage, or consumer lending businesses in the U.S.
- Capital One: Restricted for five years from operating retail deposit businesses over the internet outside the U.S. and U.K.
Risks and Contingencies: The filing notes that representations and warranties are subject to materiality thresholds and confidential disclosures. The transaction faces regulatory risk, specifically regarding Federal Reserve approval and the absence of injunctions.
Investor Verification Checklist
- Verify the final closing date and whether the 9.9% share issuance cap was triggered, requiring cash substitution.
- Confirm receipt of all required regulatory approvals, specifically the Federal Reserve's determination regarding "control."
- Monitor the completion of the IABF Transactions to ensure illiquid assets were replaced with cash as agreed.
- Review the impact of the $6.2 billion cash outlay on Capital One's liquidity and capital ratios post-closing.
- Track the integration of ING Direct's U.S. business and the enforcement of non-compete covenants.