The Competition & Markets Authority on Friday said it had opened an inquiry into Nationwide Building Society’s acquisition of Virgin Money UK (VMUK), on the grounds that the move could hurt banking competition in the UK.
In March, Wiltshire-based Nationwide said it had agreed to buy rival lender Virgin Money UK in an all-share deal worth around £2.9 billion.
Nationwide offered 220p per Virgin Money share, comprising 218p in cash and a 2p dividend. Virgin Money shares were largely unchanged on Friday morning at 213p.
Nationwide said that the deal would “combine two complementary businesses, creating the second-largest provider of mortgages and savings in the UK” behind Lloyds Banking Group (LLOY).
Last week, the requisite number of Virgin Money shareholders voted in favour of the scheme, expected to complete in the fourth quarter of 2024 following court sanctioning.
However, the CMA on Friday said it is considering whether the deal could result in a relevant merger situation and, if so, whether this “may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”.
The CMA has informed the two parties of the launch of its merger inquiry, and will pass a phase 1 decision within 40 days of the announcement.
To assist with the assessment, the CMA has invested comments from any interested party.
Is Nationwide Paying a Fair Price?
Morningstar analyst Nathan Zaia, in a note published on April 30, recommended that Virgin Money shareholders accept the proposal on the grounds that the Nationwide price is fair.
“We maintain our fair value estimate for Virgin Money of 220p per share, which aligns with the takeover price. Since the first disclosure of the intended acquisition, Virgin Money’s share price has risen 35% to around 215p, suggesting the market thinks the takeover will likely proceed.
T”he offer price is a 38% premium to Virgin Money’s closing share price on March 6, 2024, just before the bid was announced, and a 40% premium of the volume-weighted average closing price for the three months leading up to March 6, 2024. The offer represents a modest premium to our stand-alone fair value of 210p.
“A superior offer is unlikely. We believe Nationwide is paying a fair price for Virgin Money, and the board of directors unanimously recommended shareholders to vote in favor of the scheme. So far, Nationwide has secured irrevocable undertakings from Virgin Money’s directors and shareholders, with a combined interest of approximately 14.9%, to vote for the proposal. To become effective, the scheme requires no less than 75% shareholder approval and is not subject to the approval of Nationwide’s members.”
