Nationwide to buy Virgin Money bank for £2.9bn

Nationwide Building Society has agreed terms with Virgin Money UK for a potential all-cash takeover deal worth around £2.9billion, creating one of Britain’s biggest banks.

Should the deal go ahead it will see Nationwide remain a building society, the lender said, but with an expanded suite of products and services, and greater scale and financial strength.

The 220p per share offer, which comprises a 118p cash consideration and a 2p per share dividend, is at a premium over 38 per cent to Virgin Money’s undisturbed share price as of 6 March.

Any deal would not be subject to the passing of a resolution by Nationwide’s members.

Combination: Nationwide Building Society to create one of Britain’s biggest banks with Virgin Money UK takeover

Virgin Money shares soared by around 36 per cent to 216.2p by midmorning on Thursday. 

Analysts at Peel Hunt said: ‘We think 220p is an attractive level. We doubt that VMUK’s share price would reach that level in any reasonable time horizon without a bid. 

‘In our view, VMUK shareholders should accept any cash bid at 220p.’ 

The combined group will control total assets of more than £366billion, and total lending and advances of almost £284billion, representing the second largest provider of mortgages and savings in the UK.

Chairman of Nationwide Building Society Kevin Parry said: ‘A combination with Virgin Money would accelerate Nationwide’s strategy and create a stronger, and more diverse, modern mutual.

‘The combination would increase Nationwide’s scale and financial strength, put us in a stronger position to continue to provide Fairer Share Payments to eligible Nationwide members, and offer rates for mortgages and savings that are, on average, better than the market average.’

Nationwide, which is Britain’s biggest building society, highlighted the scaling opportunities offered by Virgin Money’s position as the country’s sixth largest retail bank.

It also noted its credit card business, which controls an 8.6 per cent market share, and its £9billion of existing business lending balances.

Nationwide said it does not intend to make any ‘material changes’ to Virgin Money’s 7,300-strong full-time headcount ‘in the near term’ and would ‘safeguard the existing contractual and statutory rights of Virgin Money employees, including pension arrangements and redundancy policies’.

Debbie Crosbie, Nationwide CEO, added: ‘We believe the combination would create a stronger and more diverse business that will be better placed to deliver value to our members and customers, both now and in the future.’

Virgin Money said the deal would see the group benefit from Nationwide’s ‘scale and pace of invesment’, as well as the building society’s ability to leverage its ‘capabilities and strengths’.

Chairman of Virgin Money David Bennett said: ‘The Board of Virgin Money is pleased that Nationwide recognises the considerable strengths and opportunities that exist across our business, with the potential acquisition delivering attractive value for our shareholders.

‘We are confident that a combination would support an exciting new chapter for Virgin Money to benefit from Nationwide’s scale and ambition.’

Commenting on the deal, Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: ‘A mutual taking over a listed bank is a rare move, but Nationwide clearly does not want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting-edge financial services. 

‘The Virgin Money board is minded to accept the deal, which at a 38 per cent premium to yesterday’s closing price, may not be surprising given the difficulties faced by the company over the last year amid swirling cost-of-living pressures increasing credit card arrears. 

‘There will be some hand-wringing again over yet another listed company leaving the London Stock Exchange. Valuations are weak, weighed down by the highly sluggish economy, and to some extent the lingering effects of Brexit.’

This post first appeared on Dailymail.co.uk