Nationwide challenges UK's big banks with $3.7 billion Virgin Money bid
By Sinead Cruise and Yadarisa Shabong
LONDON (Reuters) — Britain's Nationwide Building Society has agreed to buy Virgin Money (LON:VM) UK in a potential 2.9 billion pound ($3.7 billion) all-cash deal to create the country's second-largest savings and mortgage provider.
The proposed deal is the latest example of a bounce in merger and acquisition activity among British lenders, with some seeking to bolster their balance sheets against a possible bump in bad loans as households and businesses face a recession.
Barclays said last month it would buy the banking operations of supermarket group Tesco (OTC:TSCDY) for about 600 million pounds and some analysts said the Nationwide's move could prompt deals by others looking to preserve market share.
Nationwide said its offer of 220 pence per Virgin Money share represented a premium of 38% as of March 6 and would be funded through the mutual's existing cash resources.
Virgin Money's shares were up 36% to 217 pence at 1242 GMT, and were set for their biggest one day gain since its initial public offering (IPO).
Richard Branson's Virgin Group Holdings, which founded Virgin Money and which holds around 14.5% of its total shares in issue, has also indicated support for the deal.
Analysts said the transaction could increase competition in Britain's mortgage and savings market and spur a revival in some bank stocks, which have wilted in the face of geopolitical tensions and lacklustre economic growth.
«With the outlook for the UK economy stabilising, we wouldn't be surprised to see more deals like this,» RBC Capital Markets analyst Benjamin Toms told Reuters.
«UK bank valuations are relatively cheap for the sustainable returns they offer,» Toms added.
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