Nationwide to Buy Virgin Money for £2.9 Billion

Virgin Money shares jumped 35% on the news of a takeover

Alliance News 7 March, 2024 | 10:54AM Sunniva Kolostyak
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Nationwide Building Society on Thursday said it has reached a "preliminary" agreement to buy Virgin Money UK (VMUK) for £2.9 billion in a deal that would create the second largest provider of mortgages and savings in the UK.

The all-cash offer is worth 220p per Virgin Money share, comprising 218p cash plus a proposed 2p dividend to be paid by Virgin Money prior to completion.

Virgin Money said should a firm offer be made on the same financial terms it would be "minded to recommend" it to shareholders. It has the support of the brand owner Virgin Group.

Virgin Money pointed out there had been a series of proposals from Nationwide.

The owner of Clydesdale Bank, Yorkshire Bank and Virgin Money noted the offer represented a premium of 38% to its closing share price on Wednesday of 159.05p.

Shares in Virgin Money rose 36% to 216.31p in early exchanges in London on Thursday. Nationwide is not listed on the stock market.

Key Morningstar Metrics for Virgin Money

Fair Value Estimate: 210p
Morningstar Rating: ★★★
Morningstar Economic Moat Rating: None
Morningstar Uncertainty Rating: High

Chief Executive of Virgin Money 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."

Gary Greenwood, banking analyst at Shore Capital, felt "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".

"We see the likelihood of a counter offer as being very low," he added.

Virgin Money Deal to Broaden Nationwide Services

The combined group would have total assets of around £366.3 billion and total lending and advances of around £283.5 billion, the two companies said in a statement.

Swindon-based Nationwide said it remained wholly committed to being a building society and a modern mutual.

The deal would enable it to accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically, Nationwide said.

"The deal looks to make a lot of strategic sense for Nationwide in terms of extension into cards and business current accounts + scale in core lending and deposits," say analysts at Jefferies.

The acquisition will enable Nationwide to increase its scale in its core lending and deposit markets and strengthen its position as one of the UK's leading providers of mortgages, savings and current accounts, Nationwide added.

Nationwide said the integration would take place over "multiple" years and pledged to retain a branch everywhere where the combined group is present, until at least the start of 2026.

The building society said it will not make any "material changes" to the size of the Virgin Money employee base in the near term.

Virgin Money licenses certain rights to use the 'Virgin Money' brand from Virgin Enterprises through to a trademark licence agreement.

Nationwide said the TMLA would be terminated on the fourth anniversary of completion of the deal and Virgin Money re-branded over time.

Nationwide and Virgin Enterprises are exploring options for a potential partnership relating to the expansion of the Virgin Red loyalty programme to customers of the combined group, Nationwide stated.

Virgin Group Holdings Ltd, which holds a 14.5% interest in Virgin Money, said it would support a deal on the same financial terms.

Virgin Money said it has suspended its share buyback programme with immediate effect, amid the takeover offer.

UK Market Open - Stocks on the Move

Elsewhere, FTSE 100 opened down 0.3% while the FTSE 250 was up 0.2% following the release of the chancellor’s Budget and ahead of an interest rate decision from the European Central Bank.

Multiple companies reported earnings on Thursday morning. FactSet data shows that Rentokil (RTO) is so far up almost 13% after releasing its 2023 earnings, reporting year-over-year growth in profit and revenue. Spirax-Sarco Engineering (SPX) also reported full-year results and revenue growth, and the stock is up 7%. And, Aviva (AV.) is up almost 4% on the news of increased operating profits and a share buyback programme worth £300 million.

At the other end of the spectrum, Entain (ENT) is down almost 6%. The company grew its revenue but reported losses for the full-year 2023. Finally, Melrose Industries’ (MRO) losses widened, but also here, revenue grew year-over-year. The stock is down 4%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Virgin Money UK PLC214.60 GBX0.09Rating

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