Nationwide Building Society has agreed to buy Virgin Money in a deal that values its high street rival at nearly £3bn and would create the second-largest provider of mortgages and savings in the UK.
The two lenders have reached a preliminary agreement on the key terms of a deal, which would inject fresh competition into the banking sector, with a new lender boasting £366bn in total assets, nearly 700 branches, and more than 23 million customers.
It is the latest in a string of deals involving Virgin Money, which experienced a major 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 handsome sum to retain the Virgin Money brand, Nationwide’s plans mean Virgin Money’s name will disappear from the high street.
Phasing out the brand could save Nationwide tens of millions of pounds, with Virgin Money having paid £17m to Virgin Group, which is 100% owned by the billionaire Richard Branson, for use of the name last year.
Branson, the Virgin founder, wore a pinstripe suit and bowler hat to launch the bank in 1995. He has said the venture was “a chance to change a stagnant industry and provide customers with much-needed competition”.
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 surged on the news, rising 36.5% to 217p – just below the offer price – on Thursday morning.
“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,” Virgin Money’s chairman, David Bennett, said.
Nationwide, which is led by the former TSB boss Debbie Crosbie, said it would maintain its “branch promise”, having pledged to keep all of its existing branches open until at least 2026, but that any closures already planned by Virgin Money – which has just 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-strong 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-headquartered building society, which has cut more than 800 of its own 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 chairman, Kevin Parry, said the proposed deal could ultimately help the building society offer cheaper products and make one-off payments to its customers. He said: “A combination with Virgin Money would accelerate Nationwide’s strategy and create a stronger and more diverse modern mutual.
“The combination would increase Nationwide’s scale and financial strength, put us in a stronger position to continue to provide ‘fairer share’ payments to eligible Nationwide members, and offer rates for mortgages and savings that are, on average, better than the market average.”
If approved by shareholders, the takeover would create the second-largest provider of mortgages and savings in the UK, behind Lloyds.
