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Virgin Money shareholders approve £2.9bn Nationwide takeover despite analyst warnings

Virgin Money is set for a £2.9bn tie-up with Nationwide
Virgin Money is set for a £2.9bn tie-up with Nationwide

Virgin Money shareholders have given the green light for the bank to be acquired by Nationwide for £2.9bn, paving the way for the UK’s biggest banking merger since the financial crisis.

Investors in the challenger bank voted just over 89 per cent in favour of the acquisition on Wednesday, surpassing the 75 per cent threshold required. Nearly 11 per cent of voting shareholders opposed the deal.

The unprecedented tie-up between the FTSE 250 bank and Britain’s largest building society shocked the City when it was first put forward in March.

The transaction, which is expected to complete in the fourth quarter of this year, stands to create a combined group with some 700 branches – second only to Lloyds Banking Group – and assets of roughly £366.3bn.

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The deal will also mark Nationwide’s entry into the riskier business banking market as it looks to scale and diversify away from interest rate-sensitive savings and mortgages.

Virgin Money is set to keep operating as a separate legal entity within the Nationwide group in the medium term, with a separate board and banking licence. However, the two lenders agreed that after four years, the business would have two years to rebrand from the Virgin name.

The deal, which still requires approval from the UK’s banking and financial regulators and Competition and Markets Authority, has faced opposition on both sides.

Mutually-owned Nationwide has fielded criticism for its decision not to put the deal to a vote among its more than 16m members, while analysts have said Virgin Money could have driven a harder bargain.

Nationwide’s 220p per share offer marked a 38 per cent premium to Virgin Money’s stock price immediately before the offer period began and 40 per cent to its average price over the previous three months.

However, it also represented a 35 per cent discount relative to the value of Virgin Money’s mortgages and other loan assets.

Stifel-owned KBW had advised shareholders not to back Nationwide’s offer and suggested it could have reasonably valued Virgin Money at 250p per share.

Australian firm Allan Gray, Virgin Money’s largest independent investor with a roughly 10 per cent stake, said earlier this month that the deal was “likely to sell shareholders very short”, although it is unclear which way it voted on Wednesday.

Richard Branson’s Virgin Group had pledged its 14.6 per cent holding in favour of the deal. Branson is in line for a payout of more than £700m, considering his stake in Virgin Money and licencing deals over the brand.

Virgin Money chief executive David Duffy is due to step down from his position after the transaction completes and be succeeded by Nationwide’s CFO Chris Rhodes.

On Wednesday, shareholders also voted in favour of a proposal for Virgin Money to award Duffy his full £1.1m payment in lieu of notice, due monthly, if he starts a role as a non-executive director at another company.

Influential proxy advisor Glass Lewis had advised investors not to back this move. Duffy would have otherwise been required to lower his monthly payments by the amount he received from the other role.

Nationwide’s takeover comes amid increasing consolidation within the mid-sized banking sector as lenders that have become flush with cash on the back of higher interest rates pounce on smaller rivals struggling with cost pressures and a lack of scale compared to the biggest players.

Coventry Building Society is putting the final touches on a £780m takeover of The Co-operative Bank, with an announcement expected in the coming days, while Barclays struck a deal to buy most of Tesco Bank in February.

Branson founded Virgin Money in 1995 on the promise of injecting more competition into Britain’s banking market. Following the financial crisis, Virgin Money bought Northern Rock from the government for £747m in 2011 and seven years later was itself acquired by Clydesdale and Yorkshire Banking Group for £1.7bn.

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