Crosbie’s Nationwide agrees terms to buy £2.9bn Virgin

Debbie Crosbie

Debbie Crosbie’s mutually-owned Nationwide Building Society said it has reached a preliminary agreement to buy listed Virgin Money UK plc in a £2.9 billion potential cash deal.

Nationwide CEO Crosbie is a former top executive at Clydesdale and Yorkshire Banks, now part of Virgin Money. She is also a former TSB Bank CEO.

Nationwide is offering a total of £2.20 for each Virgin Money share, including a 2p final dividend — a 38% premium to Virgin Money ’s closing share price on Wednesday.

Glasgow and Newcastle-based Virgin Money has 7,300 full time equivalent staff.

“Nationwide does not intend to make any material changes to the size of the Virgin Money employee base in the near term, and would safeguard the existing contractual and statutory rights of Virgin Money employees, including pension arrangements and redundancy policies,” said the mutual.

Nationwide has agreed to phase out the Virgin Money brand over six years.

In a joint stock exchange statement, the companies said they “reached preliminary agreement on the key terms of a potential cash acquisition of Virgin Money by Nationwide.”

They said “there can be no certainty that any firm offer will be made,” but that the Virgin Money board has concluded that “should a firm offer be made on the same financial terms as the potential acquisition, it would be minded to recommend” the deal to Virgin Money shareholders.

The companies said: “The boards of Nationwide and Virgin Money believe that, if it proceeds, the potential acquisition would combine two complementary businesses.

“The potential acquisition would create a combined group with total assets of approximately £366.3 billion and total lending and advances of approximately £283.5 billion, representing the second largest provider of mortgages and savings in the UK.

“Nationwide has grown over time through a series of historical acquisitions to become the UK’s largest building society.

“Nationwide remains wholly committed to being a building society and a modern mutual that meets its customers’ and members’ banking needs to a high standard.

“The Nationwide board believes that the potential acquisition would enable Nationwide to accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically, whilst providing a return that would further support Nationwide’s financial strength and deliver greater value to its customers and members.”

Nationwide said it would seek to integrate Virgin Money gradually over multiple years into the Nationwide group. In the medium term, Virgin Money would continue to operate as a separate legal entity within the Nationwide group, with a separate board of directors and a separate banking licence.

Nationwide intends “that the combined group would retain the ‘Virgin Money’ brand in the medium term, but has agreed with Virgin Enterprises Limited that it would cease doing so over a six-year period from completion of the potential acquisition, by which point Nationwide would intend to have re-branded the Virgin Money business.”

Nationwide CEO Crosbie said: “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’ and leading levels of customer service.

“We believe the combination would create a stronger and more diverse business that will be better placed to deliver value to our members and customers, both now and in the future.”

Virgin Money UK CEO David Duffy said: “This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new Tier 1 bank in recent history.

“The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.”

The companies said in their statement that Virgin Money is the UK’s sixth largest retail bank by total assets with a customer base of 6.6 million and total lending of £72.8 billion, comprising a mortgage portfolio of £57.1 billion and deposit portfolio of £67.3 billion.

They said the potential acquisition would enable Nationwide to increase its scale in its core lending and deposit markets and strengthen Nationwide’s position as one of the UK’s leading providers of mortgages, savings and current accounts.

In credit cards, the companies said Virgin Money has a strong unsecured lending business, with £6.7 billion of balances, including an estimated 8.6% market share of UK credit cards, which the Nationwide board “believes would complement Nationwide’s existing product offering and unsecured lending.”

In business banking, Nationwide believes that Virgin Money’s £9 billion of existing business lending balances and ‘Business Current Account’ would enable Nationwide “to build on its existing business savings proposition, with a broader business banking offering to support Nationwide’s growth and diversify its sources of funding.”