Nationwide building society has agreed to buy its high-street rival Virgin Money for nearly £3bn in the largest UK banking deal since the 2008 financial crisis.
The two lenders have reached a preliminary agreement on the key terms of the takeover, which – if approved – would narrow competition with the big four banks. It would create a combined group with £366bn in total assets, nearly 700 branches and more than 23 million customers.
Buying Virgin Money, the UK’s sixth-largest retail bank, would also solidify Nationwide’s position as the second-largest mortgage lender behind Lloyds Banking Group, according to data gathered by the industry body UK Finance on outstanding home loans.
It is the latest in a string of deals involving Virgin Money, which experienced a huge growth spurt after buying the beleaguered lender Northern Rock from the government for £747m in 2011, nearly four years after its takeover target was nationalised during the financial crisis.
Seven years later, Virgin Money was at the centre of another big UK banking deal, when it was bought by Clydesdale and Yorkshire Banking Group (CYBG) for £1.7bn in 2018.
But while CYBG paid a large sum to retain the Virgin Money brand, Nationwide’s plans mean Virgin Money’s name will disappear from the high street within six years.
Phasing out the brand could save Nationwide, which is led by the former TSB boss Debbie Crosbie, tens of millions of pounds long term. Virgin Money paid £17m to Virgin Group, which is 100% owned by Sir Richard Branson, for use of the name last year.
Branson is expected to reap about £414m from the deal because of his remaining 14.5% stake in Virgin Money, which he founded in 1995. The billionaire, who wore a pinstripe suit and bowler hat at the bank’s launch, said at the time the venture was “a chance to change a stagnant industry and provide customers with much-needed competition”.
The former Virgin Money chief executive Jayne-Anne Gadhia welcomed the potential deal. Gadhia, who is still a Virgin Money shareholder, said it would be a “shame” to see the brand go but believed the potential takeover would “likely to accelerate benefits for Virgin Money customers”.
She also applauded Crosbie’s role in pushing forward one of the largest UK deals in recent history. “It’s fantastic to see a significant deal led by a female leader of a major financial institution”.
The proposed £2.9bn deal offers Virgin Money shareholders 220p a share, representing a 38% premium on the lender’s share price on Wednesday.
Virgin Money shares soared on the news, rising 34% to 212p – not far below the offer price – on Thursday.
The company’s chair, 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.”
Nationwide said it would maintain its “branch promise”, having pledged to keep open all of its existing branches until at least 2026. However, it said any closures already planned by Virgin Money – which has only 91 sites – would still go ahead.
Nationwide, which has about 18,000 employees, said it did not plan to make “any material changes” to Virgin Money’s 7,300-member workforce in the near term, but did not give further details about longer-term job cuts, which are common when two groups combine.
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The Swindon-based building society, which has cut nearly 800 of its staff over the past 12 months, said it “would safeguard the existing contractual and statutory rights of Virgin Money employees, including pension arrangements and redundancy policies”.
Nationwide’s chair, Kevin Parry, said the proposed deal could ultimately help the building society offer cheaper products and make one-off payments to its customers.
The mutual was founded as the Southern Co-operative Permanent building society in 1884, became Nationwide in 1970 and has grown into a group with more than 600 branches.
While it is rare to see a mutual taking over a listed bank, analysts said Nationwide’s surprise move proved it wanted to stay relevant. “Nationwide clearly does not want to be stuck in the past and wants the knowhow and access to scoop up future customers who demand more cutting-edge financial services,” said Susannah Streeter, the head of money and markets at Hargreaves Lansdown.
Nationwide has until 4 April to provide a formal offer, which will then have to be put to Virgin Money shareholders. Branson’s Virgin Group, the largest shareholder, confirmed on Thursday that it was prepared to approve the deal.
While Nationwide is technically a mutual, it will not have to seek approval from its members.
The announcement comes just weeks after Barclays announced it was buying the bulk of Tesco Bank for £700m, while another building society, Coventry, has entered intotalks to potentially buy the Co-operative Bank from its hedge-fund owners for an unconfirmed sum.
