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Nationwide and Virgin Money face mounting opposition to £2.9bn merger

Nationwide's merger with Virgin is facing growing opposition
Nationwide's merger with Virgin is facing growing opposition

Nationwide’s bid to acquire high-street rival Virgin Money is facing mounting opposition from both members and analysts ahead of a shareholder vote.

The world’s largest building society with more than 16m members, Nationwide struck a £2.9bn deal last month to acquire Virgin Money, Britain’s sixth-biggest high street bank, and create the UK’s second-largest provider of mortgages and savings.

The deal will now be voted on by Virgin Money’s shareholders, requiring at least 75 per cent approval.

Nationwide has offered a total of 220p per Virgin Money share, including a 2p final dividend. However, analysts at Stifel-owned KBW said in a note yesterday that it was not enough.

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“We want more,” they said. “We believe that this offer is inadequate for what is the leading quoted UK challenger bank.”

While acknowledging that Nationwide’s offer represented a 38 per cent premium to Virgin Money’s stock price immediately before it announced the bid, analysts said the valuation was only an 11 per cent premium to the company’s pre-bid consensus target price.

They recommended Virgin Money’s shareholders vote against Nationwide’s current offer at the bank’s general meeting, which is due at some point after April.

KBW analysts reiterated their outperform rating on Virgin Money and raised its price target to 250p from 200p, signalling what they think Nationwide could reasonably value the stock at.

They said the proposal failed to reflect Virgin Money’s “unique opportunity” and that the transaction’s “strategic and financial logic” applied to several other potential acquirers that the analysts cover, especially Barclays.

When the bid was first announced, Shore Capital analyst Gary Greenwood pointed out that it marked a 35 per cent discount to Virgin Money’s book value, adding: “We feel it undervalues the group and that management could have perhaps driven a harder bargain.”

However, analysts have also pointed out weaknesses in Virgin Money’s earnings and cost pressures in recent times, adding to questions over its competitiveness with bigger high-street rivals.

On the other side of the deal, more than 1,500 people have signed a petition demanding Nationwide members have a say on the takeover bid. Unlike FTSE 250-listed Virgin Money, mutually-owned Nationwide will not put the offer to a vote.

A takeover would be a rare example of a mutual acquiring a listed company. Nationwide has previously acquired several smaller building societies, but Virgin Money is a FTSE 250 bank about a third of its size.

Rebel Nationwide members argue that the rules of the society allow them to bring a Special General Meeting if enough members request it. It is understood that a meeting to raise concerns over the deal requires at least 500 qualifying members to issue a formal submission and deposit £50 each.

A source close to Nationwide told City A.M. that the building society was seeing little opposition from members internally and highlighted the fact that signatories to the petition represented less than 0.01 per cent of its total members.

A Nationwide spokesperson said the acquisition would offer “compelling benefits for the building society’s current and future members” including better savings and mortgage rates, and would “improve the financial strength of our society”.

They added that Nationwide had found “very strong support for the transaction” after “widespread polling of its members”, with whom it had communicated regularly.

A Virgin Money spokesperson referred to a comment from chair David Bennett last month, who said the terms of the offer “deliver an attractive premium for our shareholders in cash and reflect the group’s strong future prospects”.

Nationwide set to grow assets by a third with Virgin Money acquisition

Nationwide

Virgin Money

Assets

£274.5bn

£91.8bn

Customers

17.9m

6.6m

Branches

605

91

Staff

18,000

7,300