According to the Financial Times, the acquisition presents Nationwide with an opportunity to venture into business banking, a pursuit that was previously interrupted during the pandemic, as well as to expand its presence in the mortgage market. This proposed merger stands as a significant strategic manoeuvre by Nationwide's CEO in the ongoing efforts to challenge the dominance of HSBC, Lloyds, Barclays, and NatWest in both consumer and business banking sectors.
Nationwide representatives stated that this transaction would enable it to expedite its strategic objectives and diversify its product and service offerings more swiftly than through organic growth. Under the terms outlined, Nationwide would offer a total of 220p for each Virgin Money share, including a 2p final dividend.
Virgin Money, originally established as Virgin Direct in 1995 was acquired by Clydesdale & Yorkshire Banking Group for GBP 1.7 billion in 2018. The combined entity retained the Virgin brand, with shares priced around 270p at the time. The board of Virgin Money has expressed inclination to recommend a firm offer, with Sir Richard Branson's Virgin Group holding a 14.5% stake in Virgin Money, indicating support for the deal. If approved, Virgin Group's stake would surpass GBP 400 million in value.
Nationwide anticipates that the combined entity, with assets totalling approximately GBP 366 billion, would become the second-largest provider of mortgages and savings in the UK. The acquisition is expected to provide access to a broader range of funding, particularly from business deposits.
Initially, Virgin Money would continue to operate as a distinct business within Nationwide, with eventual integration and retirement of the brand over the next six years. As per contractual obligations, Nationwide would continue to pay GBP 17 million annually to Virgin Group for the use of the Virgin brand for another four years.
Nationwide has indicated no immediate plans for significant alterations to the size of Virgin Money's workforce. Virgin Money currently employs approximately 7,300 individuals according to the Financial Times.
The same source reveals that Virgin Money reported pre-tax profits of GBP 345 million for the 12 months ending September, albeit lower than anticipated due to increased provisions for bad loans. In recent years, the company's performance has also been impacted by substantial compensation payouts related to mis-sold payment protection insurance.
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