Earlier this month, Nationwide said that it had agreed to the terms of a potential takeover of Virgin Money, with brokers at the time saying that the combination could “create another Goliath”.
In an update on the London Stock Exchange (LSE), Nationwide will offer 220 pence in cash for each Virgin Money share, which comprises of 218 pence per Virgin Money share in cash consideration and a proposed dividend of two pence per Virgin Money share to be paid at the end of this financial year.
This equates to £2.9bn on a fully diluted basis and represents a premium of 38 per cent to the closing price of 159.1 pence per Virgin Money share on 6 March.
The statement noted that it is a 40 per cent premium on the volume-weighted average closing price of 157.4 pence per Virgin Money share in the three months to 6 March.
Virgin Money acquisition will make second-largest mortgage and savings lender in UK
The statement added that the boards of both banks believe the acquisition will “combine two complementary businesses, creating the second-largest provider of mortgages and savings in the UK”.
The statement noted that Nationwide had grown over time through a “series of historical acquisitions” and was the country’s largest building society, and it was “wholly committed” to being a building society.
The note also said that Nationwide’s board believed that buying Virgin Money would “accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically, whilst providing a return that will further support Nationwide’s financial strength and deliver greater value to its customers and members”.
The statement reported that the combined group would have “enhanced financial strength” through greater diversity of funding, especially from business deposits, and an “opportunity to generate improved returns”.
“Nationwide expects to be able to capitalise on this financial strength to support the continued provision of its ‘Fairer Share Payment’ to eligible Nationwide members and member financial benefits via mortgage and savings rates that are, on average, better than the market average, along with other incentives,” it added.
Virgin Money, which is being advised by Goldman Sachs and JP Morgan Cazenove, considers the terms of the acquisition to be “fair and reasonable”.
The independent Virgin Money directors intend to recommend the deal unanimously to shareholders.
The acquisition is expected to complete in Q4 2024, subject to certain conditions, the statement added.
Virgin Money rebrand will happen over two years post-completion
The statement noted that Nationwide recognises the “significant” role that the Virgin Money brand has played in developing the company, but it intends to “rebrand over time”.
The brand licence agreement will terminate automatically on the fourth anniversary of completion, and then Virgin Money will have a two-year period to rebrand.
Nationwide has also entered into an exclusivity agreement with Virgin Red, so they will engage in discussions for a six-month period after completion to expire a potential partnership relating to the growth of Virgin Red loyalty programme to all customers.
Acquisition is an ‘exciting opportunity’
Kevin Parry, chair of Nationwide Building Society, said that after “full consideration and the appropriate due diligence”, and accounting for comments from members, the board’s assessment of the acquisition offer for Virgin Money was in the “best interests of the society and its present and future members”.
Debbie Crosbie, Nationwide Building Society’s CEO, said: “This acquisition strengthens Nationwide and means we can offer more value and broader services for our current and future members.
“More people will experience the benefits of mutual ownership and the customer-focused approach of a building society. This includes Nationwide’s unique Branch Promise, which we are extending until at least the start of 2028. The Promise will also apply to Virgin Money branches.”
David Bennett, Virgin Money UK’s chair, added: “The board of Virgin Money believes that this strategic transaction recognises the strengths and opportunities in our business. We’re pleased to recommend the terms agreed with Nationwide, which deliver an attractive premium for our shareholders in cash and reflect the group’s strong future prospects, combining two complementary businesses.”
David Duffy, Virgin Money UK’s CEO, noted: “The proposed combination with Nationwide presents an exciting opportunity to build on Virgin Money’s significant strategic and operational progress, including the consistent growth in our retail and business customers, deposits and target lending. Together, the combined group can offer more great products and services to a larger customer base.”
