Analysts critical of Virgin Money UK agree on $4.4bn takeover deal

Britain’s biggest building society has agreed to the terms of a $4.4bn takeover of Virgin Money UK but analysts say the offer price for the dual-listed NAB spin-off is low.

Virgin Money CEO David Duffy. Picture: Jane Dempster/The Australian

Nationwide Building Society and its takeover target Virgin Money UK have agreed to the terms of a recommended £2.9bn ($4.39bn) cash offer.

Nationwide, the world’s largest building society, lobbed the £2.20 a share bid for the National Australia Bank spin-off earlier this month.

A takeover would remove the dual-listed lender from the Australian Securities Exchange.

The stock fell 2.5 per cent to $3.95 on the ASX on Thursday, before the latest announcement from the UK.

The takeover, which represents the biggest British banking deal since Covid, will create the second largest provider of mortgages and savings in the UK.

Independent Virgin Money directors intend to recommend unanimously that shareholders vote in favour of the takeover.

Virgin Money was created in 2018 by the merger of Virgin and Clydesdale & Yorkshire Banking Group.

CYBG, formerly a subsidiary of NAB, was spun out as a separate entity about eight years ago when the Australian banking giant exited Britain.

The offer is for £2.18 per Virgin Money share plus a proposed dividend of 2 pence per share to be paid as part of Virgin Money’s ordinary dividend calendar for the current financial year or, if earlier, shortly prior to completion of the deal.

Nationwide Building Society expects Virgin Money to rebrand over time. Picture: Dan Kitwood/Getty Images

Australian and New Zealand shareholders, who comprise almost two-thirds of Virgin Money’s share register, can elect to receive their payment in Australian or New Zealand dollars instead of pound sterling (based on the prevailing exchange rates at a date to be determined), with further details to be provided in the scheme document which will be sent out next month.

Shore Capital analyst Gary Greenwood said the offer price valued the financial-services group lower than its last reported tangible net asset value per share of £3.37.

“By accepting such a low valuation multiple, we think the board of VMUK must have had little faith in its management team to execute on its strategic plan and ultimately deliver a double digit return on equity and so a higher rating,” he said, according to Dow Jones.

Nationwide CEO Debbie Crosbie said the acquisition would strengthen Nationwide and means it can offer more value and broader services to its current and future members.

“More people will experience the benefits of mutual ownership and the customer-focused approach of a building society,” she said. “This includes Nationwide’s unique Branch Promise, which we are extending until at least the start of 2028. The Promise will also apply to Virgin Money branches.”

Nationwide has vowed to keep existing branches open until at least the start of 2028.

Virgin Money chairman David Bennett said the board was pleased to recommend the terms agreed with Nationwide, which deliver an attractive premium for shareholders in cash and reflected the group’s strong future prospects, combining two complementary businesses.

Virgin Money CEO David Duffy said the deal with Nationwide presented an exciting opportunity to build on Virgin Money’s significant strategic and operational progress, including the consistent growth in retail and business customers, deposits and target lending. “Together the combined group can offer more great products and services to a larger customer base,” he said.

Nationwide intends for the Virgin Money business to re-brand over time.