Nationwide has agreed terms to take over Virgin Money in a £2.9 billion deal, creating one of the UK's largest mortgage and savings groups.
The preliminary agreement would see the two brands initially run as separate entities, with the Virgin Money brand phased out over six years.
If the deal goes ahead it would be the biggest UK bank takeover since the 2008 financial crisis - and also a rare one, given this is a building society acquiring a listed bank.
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It will be interesting to see how Nationwide, which gives its profits back to its members - like the £100 payments seen last year - and Virgin Money, with its investment service and reward points scheme, fit together.
We look at the deal in more detail, and what it could mean for Virgin Money customers.
Why is Nationwide buying Virgin Money?
Virgin Money has been struggling lately, with shares trading below levels seen in 2021, and a slump in full-year profit reported last November resulting in a series of downgrades from analysts.
In contrast, Nationwide has enjoyed an earnings boost on the back of stronger net interest margins thanks to higher interest rates.
“However, that tailwind looks set to fade once the Bank of England begins cutting interest rates. It looks like Nationwide is looking to offset this by making the most of its current strong financial position, pursuing inorganic growth instead and snapping up an undervalued asset, allowing the combined group to take up greater market share in the UK,” said Victoria Scholar, head of investment at Interactive Investor.
She notes that the proposed all-cash deal values each Virgin Money share at 220 pence, equating to a 38% premium to yesterday’s close, causing the stock to surge today.
In a joint statement to the London Stock Exchange, Nationwide said the takeover would “deepen its products and services faster than could be achieved organically”.
Virgin Money is Britain’s sixth-largest retail bank by total assets with 6.6 million customers. The acquisition would bolster Nationwide’s mortgage, savings, current account and credit card divisions, as well as broaden its business banking offering.
Will the deal go ahead?
The stock exchange statement said: “The Virgin Money Board has carefully evaluated the potential acquisition together with its financial advisers and has concluded that, should a firm offer be made on the same financial terms as the potential acquisition, it would be minded to recommend it to Virgin Money shareholders.”
David Duffy, chief executive officer of Virgin Money UK, called it an “exciting opportunity”, while Kevin Parry, chairman of Nationwide Building Society, said acquiring Virgin Money would “accelerate Nationwide's strategy and create a stronger, and more diverse, modern mutual”.
The deal does not need the approval of Nationwide's mutual members but it does need to be backed by Virgin shareholders.
A planned 2p a share dividend payout would come on top of the all-cash offer of 220p per Virgin Money share.
If the deal does go ahead, it would create a combined group worth around £366.3 billion.
What does it mean for customers?
There are no changes for Virgin Money customers at the moment. However, if the deal goes through, some changes will start to happen.
First, the Virgin Money brand will be retained for the “medium term”, but will disappear after six years, by which point it will have been rebranded by Nationwide.
Second, there could be some branch closures. Combining the two would create a group with 696 branches, second only to Lloyds Banking Group.
Nationwide said it would keep a branch in each location where the two businesses are present until at least the start of 2026.
The building society also pledged to not make any material changes to Virgin Money's 7,300-strong workforce "in the near term".
In time, there could be changes to products, such as current accounts, savings accounts and cash ISAs. The future of Virgin Money’s investment service, launched a year ago, is also unclear.
What’s the difference between a building society and a bank?
The main difference between a bank and a building society is that building societies are owned and run by their members – in other words, the people who bank, save and borrow with them.
A listed bank is floated on the stock market, so is owned by its shareholders.
Building societies sometimes offer better interest rates than banks. On the other hand, banks may be more digitally-focused and have a larger product range.
The stock market statement acknowledged that Virgin Money had an ambition of becoming the UK's best digital bank.
Debbie Crosbie, chief executive officer of Nationwide Building Society, said of the proposed deal: "Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches, as part of our 'branch promise'.”
If you’re a Nationwide customer and wondering if the Fairer Share scheme will continue, which saw eligible members receive a £100 bonus last year, chairman Kevin Parry said the deal would “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."
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