LONDON, UK – British lender Nationwide revealed on Thursday a deal to buy smaller peer Virgin Money for about US$3.7 billion (£2.9 billion), seen as a bid to better compete against the UK’s biggest retail banks.
Nationwide Building Society, a mutual owned by its members and specializing in home loans, has offered the equivalent of $3.7 billion for London-listed Virgin Money, the pair said in a statement.
“The boards of directors of Nationwide Building Society and Virgin Money UK PLC are pleased to announce that they have reached preliminary agreement on the key terms of a potential cash acquisition,” they added.
Nationwide management believe the transaction will “broaden and deepen its products and services faster than could be achieved organically”, it noted.
The proposed takeover, pitched at 220 pence per share including a planned dividend payout of two pence, marked a 38-percent premium to Virgin Money’s closing share price on Wednesday.
The news sent Virgin Money shares surging almost 36 percent to 216.11 pence in morning trade in the British capital.
“Nationwide intends to swallow challenger bank Virgin Money, putting it in a position to challenge the might of the four big high street banks,” said Susannah Streeter, head of money and markets at stockbroker Hargreaves Lansdown.
“It wants to bolster and diversify streams of funding, tap into business deposits, and give a rocket boost to the development of its services. A mutual taking over a listed bank is a rare move.”
Britain’s so-called “Big Four” retail banks comprise Barclays, HSBC, Lloyds Banking Group and NatWest.
Nationwide stressed that it would remain as a mutual should the deal complete.
It remains subject to due diligence and approvals from Virgin Money shareholders as well as Nationwide’s borrowers and depositors.
“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,” said Nationwide chief executive Debbie Crosbie.
She also pledged to retain Nationwide’s bank branches at a time when many rivals opt for mass closures as people increasingly switch to online banking.