Nationwide building society is lined up to take over its smaller rival Virgin Money after the pair formally agreed a deal worth £2.9bn.
The acquisition, which will solidify Nationwide’s position as the UK’s second-largest mortgage lender, will also trigger the resignation of Virgin Money boss David Duffy, and is likely to lead to job cuts as well as an official “review” of the combined group’s workforce.
Nationwide chair, Kevin Parry, said: “Following full consideration and the appropriate due diligence, and after taking comments from members into account, the board of Nationwide’s assessment is that the binding offer to acquire Virgin Money is in the best interests of the society and its present and future members.”
While Nationwide has stopped short of offering its own members a vote on the deal – citing UK takeover rules of publicly listed companies – it will still need approval from Virgin Money shareholders.
Virgin Money’s largest investor, Sir Richard Branson, has already indicated that he will back the takeover, which will result in a £724m windfall for the billionaire businessman.
That figure includes £414m from the buyout of his 14.5% stake in Virgin Money, which he founded in 1995, and £310m for the use of the Virgin Money brand, a sum that includes Nationwide paying £15m in annual royalties for the first four years, as well as a £250m exit fee, which will lead to the name disappearing from UK high streets.
Nationwide defended the payouts to Virgin. “Nationwide recognises the significant role that the ‘Virgin Money’ brand has played in the development of Virgin Money over time. However, as part of its longer-term integration strategy, Nationwide intends for the Virgin Money business to re-brand over time.”
Nationwide said it had initially approached Virgin Money with an undisclosed offer in late January, but was quickly rejected by the rival’s board. It pushed ahead with a series of revised proposals, before settling on the bid for 220p per share, which was initially announced to the stock market on 7 March.
While Nationwide has said ruled out “material changes” to Virgin Money’s 7,300-strong staff base in the first year after the takeover, it admitted there would be some “limited workforce changes” to deal with overlapping roles and will launch a formal “review” of its employee base in the coming years.
“All workforce changes would be subject to comprehensive planning and engagement with affected employees and their representatives,” Nationwide, which has about 18,000 employees, said.
The group added that it would extend its “branch promise”, having pledged to keep open all of its existing branches until at least 2026, to 2028. It now applies to Virgin Money branches.
Virgin Money is unanimously recommending its remaining shareholders back the deal. That recommendation comes from bosses including Virgin chief executive Duffy, who will step down once the deal is completed, and will gain £3.5m from the buyout of his nearly 1.6m shares.
The listed bank, which will operate semi-autonomously for the first six years, will instead be led by Nationwide’s finance chief, Chris Rhodes, who will report directly to Nationwide’s chief executive – and one of Duffy’s former deputies – Debbie Crosbie.
Nationwide said it had not yet agreed to any further payouts for Virgin Money management, but “expects to put in place appropriate incentive arrangements,” once the takeover is formalised.
