Nationwide to buy Virgin Money in £2.9bn deal

(Sharecast News) - Virgin Money said on Thursday that it has agreed to be taken over by Nationwide Building Society in a £2.9bn deal. Virgin shareholders will receive 220p per share, which is a 38% premium to the closing share price on Wednesday.

The price comprises 218p per share in cash and a 2p dividend to be paid in FY24.

The companies said the deal would create a combined group with total assets of around £366.3bn and total lending and advances of approximately £283.5bn, representing the second largest provider of mortgages and savings in the UK.

Virgin Money chief executive 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."

Nationwide CEO Debbie 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."

Shore Capital analyst Gary Greenwood said: "We had speculated for a while that VMUK was a potential bid target given its persistently low valuation, but wondered whether a trade purchase would be difficult given potential fair value adjustments and the poison pill associated with the Virgin brand agreement. In addition, there is significant integration risk for a trade buyer such as Nationwide.

"In our opinion, long suffering shareholders are likely to welcome this offer, especially given its cash nature, but we feel it undervalues the group and that management could have perhaps driven a harder bargain.

"What it does imply to us, is that management had little faith around successful execution of an organic strategy, which could have potentially yielded a much higher valuation if targets were met.

"We see little read across to the larger mainstream banks, for which takeover potential would be unrealistic, but this does underscore that there is value in the sector and that smaller banks on low valuation multiples are vulnerable to such approaches. Furthermore, we see the likelihood of a counter offer as being very low."

ShoreCap has a 'buy' recommendation on the stock.