Virgin Money shares soar on Nationwide takeover

The news: The UK’s Nationwide Building Society has reached an agreement to buy Virgin Money, its latest step in efforts to compete with the country’s big four banks.

The numbers: The £2.9 billion ($5.6 billion) deal sees Nationwide offer 220 pence per share which includes a 2 pence final dividend. The transaction marks a 38% premium on Virgin Money’s closing share price on Wednesday.

The context: When completed, the group would have total assets of around £366 billion, making it the second largest mortgages and savings provider in the UK. Virgin Money is currently the sixth largest retail bank in the country, with around 6.6 million customers, while Nationwide is the UK’s largest building society with around 8 million customers. The transaction would create a group with 696 branches, second only to Lloyds. The Virgin Money board said it would be “minded” to recommend a firm offer, and the Virgin group said it would support a deal that would allow it to benefit from Nationwide’s scale and ambition.

Nationwide said it would continue to use the Virgin Money brand initially, but plans to phase it out over a six year period after the takeover is completed.