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Nationwide and Virgin Money have agreed to join forces to create the UK’s second largest savings and loan group.
The building society will pay 220p a share, or £2.9bn, for Virgin Money, which was set up by Richard Branson in 1995 and pays the tycoon to use the Virgin name.
The proposed deal will create a business with £366bn in assets and almost 700 branches as Nationwide steps up its battle with the big high street banks.
Nationwide will continue to use the Virgin Money brand until at least 2030, but eventually the name will disappear from the High Street.
The plan will see another FTSE 250 company leave the London stock market following a wave of mergers and acquisitions.
Nationwide, led by chief executive Debbie Crosbie (pictured), will pay £2.9bn for Virgin Money, which was set up by Richard Branson in 1995.
After being founded by Branson, Virgin Money expanded with the purchase of Northern Rock from the Government following the 2008 financial crisis. Virgin Money was subsequently bought by Clydesdale and Yorkshire Bank for £1.7bn in 2018.
In the ‘medium term’, Virgin Money will be a separate legal entity within the Nationwide group, with a separate board of directors and banking licence.
There will be no changes to Virgin Money’s 7,300 employees “in the short term”, according to the announcement.
Nationwide’s offer of 220 pence per Virgin Money share was a 38 per cent premium to the bank’s closing price on Wednesday.
Virgin Money shares rose 35 per cent, or 55.65p, to 214.7p yesterday.
The mutual members of the building society do not need to approve the agreement for it to go ahead. But it does need the green light from Virgin Money shareholders. The board has said it is “willing to recommend” the offer to investors.
Nationwide chief executive Debbie Crosbie said: “Nationwide will remain a building society and a combined group would bring the benefits of fairer, mutually owned banking to more people in the UK, including our continued commitment to preserving the existing branches”.
AJ Bell investment director Russ Mold said: ‘Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry.
‘This is a bit unusual as companies often buy rivals at precisely the wrong time: that is, they acquire at the top of the market when everything seems good and then overpay for the deals, instead of taking bold and buy when everything seems bad and valuations are weak. ‘
He added: “We could attract interest from other parties now that Nationwide has entered the fray, or shareholders could push for a better price.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “A mutual taking over a listed bank is an unusual move, but Nationwide clearly doesn’t want to be stuck in the past and wants the knowledge and access to attract future clients. .’
Barclays said last month it would buy Tesco’s banking operations and it is thought Nationwide’s foray into Virgin Money could spark more mergers and acquisitions.
“With the UK economy stabilizing prospects, we wouldn’t be surprised to see more deals like this,” said Benjamin Toms, analyst at RBC Capital Markets.