Nationwide Building Society has agreed a cash deal to buy Virgin Money for £2.9bn, which will make the merged business the second largest provider of mortgages and savings in the UK.
The mutual says the move will allow it “to accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically, whilst providing a return that would further support Nationwide’s financial strength and deliver greater value to its customers and members”.
The buyout, agreed by both boards, will bring together Virgin Money’s mortgage portfolio of £57.1bn and Nationwide’s £197.9bn home loan book, as of April last year.
The deal will see Nationwide offer Virgin Money shareholders 218p a share and a 2p dividend, a 38% premium to Virgin Money’s undisturbed share price on 6 March.
The combined group will have total assets of around £366.3bn and total lending and advances of £283.5bn, the mutual says in a statement to the stock exchange. Virgin Money is the sixth largest bank in the UK.
The mutual says: “The potential acquisition would enable Nationwide to increase its scale in its core lending and deposit markets and strengthen Nationwide’s position as one of the UK’s leading providers of mortgages, savings and current accounts.
“Virgin Money has a strong unsecured lending business, with £6.7bn of balances, including an estimated 8.6% market share of UK credit cards, which the Nationwide board believes would complement Nationwide’s existing product offering and unsecured lending.”
Nationwide Building Society chief executive Debbie Crosbie says: “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.
“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 chief executive David Duffy adds: “The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.”
L&C Mortgages associate director David Hollingworth says: “Nationwide underlines its position as a superpower of the mutual sector in acquiring a substantial bank player in the mortgage market.
“The combination will create another Goliath furthering Nationwide’s ability to directly take on the big banking groups.
“This move would initially look to carry the drawback of reduced competition in the mortgage market.
Hollingworth adds: “Virgin Money has been very competitive in the mortgage market and shown itself more than capable of going toe to toe with the major high street banks.
“At times it has shown an ability to bring a different way of thinking to the market and sought to innovate in its product options.
“It also has a solid heritage in being able to take a more flexible approach for the right customers to help borrowers that may be a little outside the standard high street offerings.
“That expertise will hopefully appeal to Nationwide rather than risk the gradual demise of the more individual approach that can be available through Virgin’s Clydesdale mortgage brand in particular.”
My Community Finance chief executive Tobias Gruber points out: “While Nationwide has long been associated with security and safety, in recent times we’ve seen it reinvent itself, underscored by a recent brand refresh.
“As disruptors like Monzo and Revolut reshape the banking landscape, established banks have been sluggish to adapt.
“In contrast, Nationwide appears to have emerged from the shadows, seizing the opportunity to lead the charge in confronting the digital challenger banks head-on.
“It remains to be seen how its bold reinvention among potential customers will be received, but it’s certainly an intriguing journey to watch.”
Nationwide must make a firm bid to buy Virgin Money by 5pm on 4 April, under takeover rules.
