By Sinead Cruise and Yadarisa Shabong
LONDON (Reuters) – Nationwide Building Society has agreed to buy Virgin Money UK in a potential 2.9 billion-pound ($3.69 billion) all-cash deal that would create Britain’s second-largest savings and mortgage provider.
The total value of 220 pence per Virgin Money share represents a premium of 38% as of March 6 and would be funded through Nationwide’s existing cash resources, Nationwide said.
The proposed deal is the latest example of a bounce in merger and acquisition activity among British lenders, some of whom are seeking to bolster their balance sheets against a possible rise in souring loans as recession bears down on UK households and businesses.
Barclays said last month it would buy the banking operations of Britain’s biggest supermarket group Tesco for about 600 million pounds.
Analysts said the Nationwide-Virgin Money transaction could increase competition in the UK mortgage and savings market and spur a revival in some bank stocks, which have wilted in the face of geopolitical tensions and lacklustre economic growth.
The transaction might even prompt copy-cat deals among lenders keen to retain market share, others said.
“With the outlook for the UK economy stabilising, we wouldn’t be surprised to see more deals like this announced,” RBC Capital Markets analyst Benjamin Toms told Reuters.
“UK bank valuations are relatively cheap for the sustainable returns they offer.”
VIRGIN MONEY SHARES SOAR
Virgin Money shares soared by as much as 37% to their highest since February 2022.
They were last up 36% at 216.10 pence.
Nationwide, one of Britain’s largest mutually-owned lenders, itself a product of several takeovers and mergers, would remain a building society under terms of the preliminary offer, which remains subject to conditions.
The company said the merger would enable it to offer a wider range of products and services to its members and increase its financial strength.
“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,” Nationwide CEO Debbie Crosbie said.
If the deal proceeds as announced, the new entity would have assets of approximately 366.3 billion pounds, with lending and advances of around 283.5 billion.
Nationwide said it did not intend to make any “material changes” to the size of Virgin Money’s 7,300-strong workforce in the near term.
Virgin Money’s board said it had carefully evaluated the deal and is minded to recommend it to shareholders.
Virgin Money is the UK’s sixth-largest retail bank by assets and has around 6.6 million customers, with total lending of 72.8 billion pounds including around 57.1 billion in mortgages.
Nationwide said it would seek to integrate Virgin Money gradually over multiple years but in the medium term Virgin Money would continue to operate as a separate legal entity with a separate board of directors and a separate banking licence.
Nationwide has the largest single-brand branch network in the UK and intends to retain a branch everywhere where the combined group is present, until at least the start of
2026.
Virgin Money’s 9 billion pounds in business lending balances would enable Nationwide to build on its existing business savings proposition, and diversify its sources of funding, Nationwide said.
($1 = 0.7851 pounds)
(Reporting by Yadarisa Shabong in Bengaluru and Sinead Cruise in London; Editing by Sonia Cheema, Carolyn Cohn and Sharon Singleton)
