Virgin Money shares were sharply higher on Thursday after the lender announced it had received a formal takeover offer from Nationwide and agreed on preliminary terms.
The deal values Virgin Money at £2.9bn, a 38% premium to Virgin Money’s undisturbed share price as of 6th March 2024.
Under the proposed terms, Virgin Money shareholders will receive a total of 220p comprising of 218p cash consideration and 2p for Virgin Money’s normal dividend calendar.
Virgin Money shares were 36% higher at the time of writing.
The deal today represents another example of a UK-listed company being snapped up by a private competitor clearly seeing more value in the shares than in public markets.
What’s remarkable about today’s deal is the acquirer, Nationwide, is a naturally conservative building society owned by its members. For this organisation to deploy £2.9bn capital to take over its competitor, it must see deep value in the stock.
It’s also notable in terms of the timing. The lending market has faced two years of falling demand as mortgage rates increase. With the Bank of England likely to cut rates in the coming months, Nationwide may see a pick up in the market and feel now is the time to make its move.
“It’s an interesting time for big deals in the mortgage sector. We’ve seen tentative signs that the property market is regaining strength after a difficult few years hampered by a high interest rate environment which made mortgages less affordable,” said AJ Bell investment director Russ Mould.
“While mortgage rates have crept back up in recent weeks, the general consensus is that the Bank of England will start cutting base rates later this year and that should hopefully benefit those looking to move home or get on the housing ladder.
“Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry, albeit we’re still in a volatile period until the base rate starts to come down.”
Mould suggested Nationwide are making a well-timed move, given that most deals are completed when valuations are high and corporates are prepared to splash their cash.
“This is slightly unusual as companies often buy rivals at precisely the wrong time – namely acquiring at the top of the market when everything looks good and then overpaying for deals, rather than taking bold steps and acquiring when everything looks bad and valuations are weak,” Mould said.