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Nationwide Building Society has reached a preliminary agreement to buy Virgin Money in a £2.9bn deal that would bolster its ability to challenge the UK’s big four banks.
Nationwide is offering a total of 220p for each Virgin Money share, including a 2p final dividend, marking a 38 per cent premium to the bank’s closing share price on Wednesday.
If a deal is finalised, Nationwide said the combined group would have total assets of about £366bn and create the second-largest provider of mortgages and savings in the UK.
The move by Nationwide marks the latest attempt at consolidation among mid-tier lenders that have struggled to break the grip of bigger banks. Over the past year, rising credit card arrears have hurt Virgin Money’s performance amid the cost of living crisis.
Nationwide said on Thursday that the transaction would allow it to “accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically”. The acquisition, it added, would give it “access to greater diversity of funding, notably from business deposits”.
The purchase would also mark a rare acquisition of a listed company by a mutual. Under the initial agreement, Nationwide would pay 218p a share in cash alongside the final dividend.
Shares in Virgin Money surged 36 per cent to 217p in early trading.
Benjamin Toms, an analyst at RBC Capital Markets, said the deal would “potentially lead to increased competition in the UK mortgage and savings market” and increase the building’s society share of the mortgage market from 12.2 per cent to 15.7 per cent.
Virgin Money would continue to operate as a separate business within Nationwide initially, although eventually it would be integrated and the brand retired over the next six years.
The building society added that it did not plan to “make any material changes to the size of the Virgin Money employee base in the near term”. Virgin Money employs about 7,300 people.
The Virgin Money board said it would be “minded” to recommend a firm offer if one was made. The Virgin group, which owns 14.5 per cent of Virgin Money shares, has also indicated that it would support a deal that would allow it “to benefit from Nationwide’s scale and pace of investment”.
Virgin Money company was formed after CYBG — the owner of Clydesdale and Yorkshire Banks — took over the smaller Virgin Money business in 2018 and adopted its brand.
The companies cautioned that there was no certainty that a firm offer would be made.