Nationwide to buy Virgin Money UK

In a possible all-cash transaction valued at 2.9 billion pounds ($3.69 billion), Nationwide has agreed to acquire Virgin Money UK, forming the country's second-largest savings and mortgage provider.

According to Nationwide, the 220 pence per Virgin Money share represents a 38% premium as of March 6 and will be supported by Nationwide's current cash resources.

The planned transaction is the most recent instance of a surge in merger and acquisition activity by British lenders, some of which are trying to strengthen their balance sheets in anticipation of a potential increase in soured loans as the recession hits UK individuals and companies harder.

The Nationwide-Virgin Money deal, according to analysts, may boost competition in the UK savings and mortgage markets as well as revive some bank equities that have declined due to weak economic growth and geopolitical unrest.

According to some, the deal may even inspire lenders eager to hold onto market share to make similar agreements.

Benjamin Toms, an analyst at RBC Capital Markets, told Reuters, "We wouldn't be surprised to see more deals like this announced, especially with the outlook for the UK economy stabilising."

"UK bank valuations are relatively cheap for the sustainable returns they offer."

Shares of Virgin Money surged up to 37%, reaching their highest level since February 2022.

According to the terms of the preliminary offer, which is still subject to restrictions, Nationwide, one of the biggest mutually-owned lenders in Britain and the result of many takeovers and mergers, would continue to operate as a building society.

The firm said that by merging, it would be able to strengthen its finances and provide a greater selection of goods and services to its members.

(Sources: investing.com, reuters.com)