Virgin Money has agreed the proposed £2.9 billion takeover by Nationwide to create the UK’s second largest mortgage firm.
Nationwide has offered 220p per share for Virgin Money along with a planned 2p a share dividend payout.
Nationwide has said they will still be a mutual building society should the proposed deal go ahead and they will rebrand Virgin Money within six years.
Debbie Crosbie, chief executive of Nationwide Building Society, said, “Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches as part of our Branch Promise, and leading levels of customer service.
“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 planned deal comes after a series of proposals from Nationwide and that, if a firm offer is made on the same terms as those so far agreed, its board would “be minded to recommend it to Virgin Money shareholders.”
Virgin Money chief executive David Duffy said, “This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new Tier 1 bank in recent history.
“The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.”
Banking analyst Joseph Dickerson at Jefferies said: “The deal looks to make a lot of strategic sense for Nationwide in terms of extension into cards and business current accounts and scale in core lending and deposits.”
Simon Kent, Global Head of Financial Services at Kearney, said, “The announcement this morning represents a continuation of the trend of consolidation in the mid-tier banking market.
“A number of the full service mid-tier banks continue to find themselves stuck in a catch-22 hence the recent uptick in dealmaking. On one hand, they’re unable to compete with the sheer size and customer base of the clearing banks, and on the other, many do not have the speciality or uniqueness that allows them to differentiate.
“Particularly for companies where banking is not one of their core activities, selling the banking arm of their business allows them to reallocate capital to support core businesses.
“From the perspective of the bigger banks, the opportunity to acquire these mid-tier institutions gives them access to not only customers, but also talent and tools which would take time and investment to replicate.”
