Bank of America/MBNA Deal Boosts Capital One

Credit card companies have been hot acquisition targets lately. The sale of Providian (PVN) sparked speculation that more deals would follow as independent card companies aren’t very plentiful. Today’s announcement that Bank of America (BAC) will buy MBNA (KRB) for $35 billion only furthers that thesis.

MBNA is getting a very nice premium, with the purchase price of $27 being about 30% above the stock’s $21 closing price yesterday. B of A is paying 13.5x MBNA’s 2005 EPS estimate of $2.00 per share. Such a price has resulted in a repricing of other credit card firms in the market. Longtime Peridot favorite Capital One (COF) is rallying $5 per share (7%) today. With Providian and MBNA now out of play, COF is the last remaining large credit card company without a merger partner.

The 13.5x multiple for KRB implies that COF shares remain undervalued. Capital One should earn $7 this year, making a implied buyout value of $95 per share, versus its $74 closing price yesterday (shares are up to $79 this morning). While the speculation today will be that COF will be next in line to get a bid, I seriously doubt they are interested in selling. Nonetheless, the stock remains both undervalued and a Peridot core holding even as they remain independent.