Nationwide has agreed a deal to buy Virgin Money. The deal is reported to be for a fee of £2.9bn
While Nationwide has said that it is not looking to make any major changes to Virgin Money or to its employees just yet, it plans to phase out the brand over a six-year period, once the deal is completed. Nationwide will take on 7300 Virgin Money employees once the deal is finished.
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Nationwide has already been very vocal in its commitment to keeping all of its branches open until at least 2026. It has supported this with a hugely prominent advertising campaign that is nearly impossible to avoid.
Nationwide adds more banks to its commitment to keep branches open
With this announcement, Nationwide now adds 91 branches to its network, taking its number of branches from 605 to 696, adding further commitment to its promise.
The deal would create the second-largest banking group in the UK, behind Lloyds Banking Group. The deal is the latest piece of merger and acquisition activity for British banks. Barclays recently announced that it will acquire Tesco Bank in a deal worth £600m. Sainsbury’s Bank has also floated the idea that it is open to offers as it looks to exit the finance industry, however as of yet there have been no major announcements.
Nationwide has offered a share price of 220p a share. This is 38% higher than Virgin Money’s closing share price on 6 March. The deal does not need the approval of Nationwide’s mutual members in order to go ahead, however, it will need to be backed by Virgin shareholders, who are likely to accept to proposition.
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By GlobalDataVirgin Money recently announced it will purchase Abrdn’s 50% stake in their joint venture, Virgin Money Investments, following the successful launches of its new investment and pension services for customers.
Nationwide should approach Virgin Money rebranding with caution: GlobalData
Phoebe Hodgson, Banking and Payments Analyst at GlobalData, tells RBI: “Nationwide’s preliminary deal to acquire Virgin Money will see the building society take on an extremely loyal and satisfied customer base. GlobalData’s Financial Services Consumer Survey shows Virgin Money’s unusually high loyalty rate, with 94% of customers unlikely to switch providers. Furthermore, 90% say they are satisfied with Virgin Money’s brand.
“This indicates Nationwide is at risk of losing customers if they rebrand too quickly and disrupt customer satisfaction. Nationwide have stated they intend to integrate both banks and retire the Virgin Money brand within the next six years. While planning to do so, Nationwide should focus on providing the most competitive rates and enhanced digital services to ensure Virgin Money’s strengths are not diminished.”
Simon Kent, Global Head of Financial Services at Kearney adds: “The announcement represents a continuation of the trend of consolidation in the mid-tier banking market. A number of the full-service mid-tier banks continue to find themselves stuck in a catch-22 hence the recent uptick in dealmaking. On one hand, they’re unable to compete with the sheer size and customer base of the clearing banks, and on the other, many do not have the speciality or uniqueness that allows them to differentiate.
“Particularly for companies where banking is not one of their core activities, selling the banking arm of their business allows them to reallocate capital to support core businesses.
From the perspective of the bigger banks, the opportunity to acquire these mid-tier institutions gives them access to not only customers, but also talent and tools which would take time and investment to replicate.”
Deal makes strategic sense for Nationwide
Susannah Streeter, head of money and markets, Hargreaves Lansdown, adds ”Nationwide intends to swallow challenger bank Virgin Money, putting it in a position to challenge the might of the four big high street banks. The £2.9bn deal came as a surprise but given the building society’s strategic aim it’s makes sense. 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, but Nationwide clearly does not want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting-edge financial services. The Virgin Money board is minded to accept the deal, which at a 38% premium to yesterday’s closing price, may not be surprising given the difficulties faced by the company over the last year amid swirling cost-of-living pressures increasing credit card arrears. There will be some hand-wringing again over yet another listed company leaving the London Stock Exchange. Valuations are weak, weighed down by the highly sluggish economy, and to some extent the lingering effects of Brexit.”
