Nationwide Bids £2.9 Billion for Virgin Money to Boost Mortgages

(Bloomberg) -- Nationwide Building Society has reached a preliminary agreement to buy Virgin Money UK Plc for £2.9 billion ($3.7 billion), a move that would create the UK’s second largest provider of mortgages and savings.

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Virgin Money shareholders would receive 220 pence in cash a share under the terms of the proposed deal, according to a joint statement Thursday. That’s a 38% premium to its closing share price on Wednesday.

Shares in Virgin Money rose 36% to 216 pence by 8:22 a.m. in London. The bank’s board said “it would be minded to recommend” the offer to their shareholders.

The combination would reshape Britain’s banking landscape, adding Britain’s sixth largest retail bank by total assets to its biggest building society. The group would have total assets of approximately £366 billion and total lending and advances of approximately £283.5 billion, according to the statement.

Any deal would add Virgin’s 6.6 million customers, business lending arm and an estimated 8.6% market share in UK credit cards to Nationwide’s existing mortgages, savings and current account offerings. That would create a group with around 25 million customers and almost 700 branches, putting it behind only Lloyds Banking Group Plc.

The deal comes as consolidation in retail and mortgage banking picks up in the UK. Barclays Plc said last month it will acquire much of Tesco Plc’s banking business while Co-operative Bank agreed to buy Sainsbury’s Bank’s £500 million mortgage portfolio last year.

Nationwide, which said it would remain a building society, said in the statement that it would seek to integrate Virgin Money gradually over multiple years and doesn’t intend to make “any material changes to the size of the Virgin Money employee base in the near term.”

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Virgin Money CEO David Duffy said the transaction would “complete our journey in the banking sector as a national competitor.” The lender said in a separate statement that it has suspended its £150 million buyback program announced in November 2023.

According to the statement, the terms of the potential tie-up “have been arrived at following a series of proposals from Nationwide,” which plans to fund the deal with existing cash resources.

Nationwide intends to retain the Virgin Money brand in the medium term, but has agreed with Virgin Enterprises Ltd. that it would cease doing so over a six-year period.

What Bloomberg Intelligence Says:

Virgin Money’s agreed takeover by Nationwide is likely to complete, we believe, as its 3.5% UK mortgage market share has left it unable to compete, while the combined group would become Britain’s second-largest mortgage provider after Lloyds. The £2.9 billion offer is a 38% premium to Wednesday’s closing price.

— Mar’Yana Vartsaba, BI banking analyst

--With assistance from Jan-Henrik Förster.

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