Virgin Money to be Bought by Nationwide for £2.9bn

Nationwide, with a workforce of about 18,000 employees, stated that it did not plan any significant changes to Virgin Money’s workforce of 7,300 employees in the near term.

In what marks the largest UK banking deal since the 2008 financial crisis, Nationwide building society has agreed to purchase Virgin Money for nearly £3bn.

The preliminary agreement reached by the two lenders on the key terms of the takeover could narrow competition with the big four banks if it gets approved. The deal could create a combined group with £366bn in total assets, more than 23 million customers, and nearly 700 branches.

The acquisition of Virgin Money, which is the UK’s sixth-largest retail bank, would cement Nationwide’s position as the second-largest mortgage lender, just behind Lloyds Banking Group, according to data from UK Finance.

This deal is the latest in a series of transactions involving Virgin Money, which experienced significant growth after acquiring Northern Rock from the government in 2011. Seven years later, Virgin Money was acquired by Clydesdale and Yorkshire Banking Group (CYBG) for £1.7 billion in 2018.

Nationwide plans will result in Virgin Money’s name disappearing from the high street within six years, while CYBG paid an exorbitant amount to retain the Virgin Money brand.

The plans to phase out the brand could lead to saving Nationwide tens of millions of pounds in the long term, now being led by Debbie Crosbie. Last year, Virgin Money paid £17 million to Virgin Group, owned by Sir Richard Branson, for using the name.

Branson, who has a remaining 14.5% stake in Virgin Money, which he founded in 1995 is expected to profit about £414 million from the deal. At the bank’s launch, Branson stated that the venture was an opportunity to change a stagnant industry and give the customers some much-needed competition.

Jayne-Anne Gadhia, the former Virgin Money chief executive, welcomes the deal. Gadhia, currently a Virgin Money shareholder said that, while it would be a shame to see the brand go, the potential takeover would accelerate benefits for Virgin Money customers. She was also appreciative of Crosbie’s role in one of the largest UK deals in recent history and was overjoyed to see a significant deal being led by a female leader of a major financial institution.

According to the proposed £2.9 billion deal, Virgin Money shareholders are offered 220p a share, which represents a 38% premium on the lender’s share price. Virgin Money shares saw a spike, rising 34% to 212p, on Thursday.

David Bennet, the company’s chair commented that Virgin Money’s board was pleased with Nationwide’s recognition of its strengths and opportunities across the business.

Nationwide pledged to maintain its “branch promise,” keeping all its existing branches open until at least 2026. However, any planned closures by Virgin Money would proceed as scheduled.

Nationwide, with a workforce of about 18,000 employees, stated that it did not plan any significant changes to Virgin Money’s workforce of 7,300 employees in the near term. However, longer-term job cuts weren’t ruled out.

The Swindon-based building society, which over the past 12 months has laid off almost 800 of its staff, assured that it “would safeguard the existing contractual and statutory rights of Virgin Money employees, including pension arrangements and redundancy policies.”

Kevin Parry, Nationwide’s chair, stated that the deal aims to help the building society offer cheaper products and make one-off payments to its customers through the proposed deal.

Nationwide has a deadline to provide a formal offer, subject to approval by Virgin Money shareholders. The largest shareholder, Branson’s Virgin Group, approved the deal. The announcement comes on the heels of Barclay’s recent acquisition of Tesco Bank for £700 million and Coventry building society’s talks to potentially purchase the Co-operative Bank.