Discover Financial Services' (DFS) $600 million acquisition of Student Loan Corp. (STU) will add 9 cents to earnings per share in 2011.

"It's not often that you can do an acquisition that is such a great fit and is immediately accretive to shareholders," said David Nelms, Discover's chief executive, in an interview with Dow Jones Newswires.

Under the terms of the deal, Discover will pay $30 a share for the company, acquiring $4.2 billion of private student loans at 91.5 cents on the dollar.

The purchase "significantly accelerates our participation in the private loan business," said Nelms. "It gives us a platform that's very strong and gives us a more mature business."

The deal is slated to close by year end.

Before Discover buys the student loan company, in which Citigroup Inc. (C) has an 80% stake, SLM Corp. (SLM) will buy $28 billion of federal student loans from Student Loan under a separate transaction. SLM, popularly known as Sallie Mae, expects the deal to close by year-end. In addition, Citigroup is buying $8.7 billion of assets from Student Loan, ahead of its acquisition by Discover.

Discover's acquisition comes as the card issuer and payments network company seeks revenue growth. To this end, it is ramping up its business in personal and private student loans. Discover hopes these consumer loans, which are emerging as a central plank in Discover's business strategy, will help offset lower credit-card income as sweeping legislation curbs card fees and interest rates.

Discover, spun out of Morgan Stanley (MS) in 2007, is the smallest of the major U.S. card issuers. Unlike most other card companies, which either issue plastic or process the transactions, Discover does both. Discover cardholders charged $100.4 billion on their plastic in 2009, according to the Nilson Report, a newsletter that tracks the payments industry.

As of Discover's first quarter ended Feb. 28, the latest quarter for which numbers are available, the volume of private student loans totaled $800 million, up from $300 million a year ago and less than $100 million in the third quarter of 2008.

Discover's shares recently traded at $15.66, down 0.79%.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com
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