Summary and highlights
· The boards of directors of Nationwide Building Society (“Nationwide“) and Virgin Money UK PLC (“Virgin Money“) are pleased to announce that they have agreed the terms of a recommended cash acquisition of the entire issued and to be issued share capital of Virgin Money by Nationwide (the “Acquisition“).
· Under the terms of the Acquisition, each Virgin Money Shareholder will be entitled to receive:
for each Virgin Money Share: 220 pence in cash
comprising:
o 218 pence per Virgin Money Share in cash consideration (the “Consideration“); and
o a proposed dividend of 2 pence per Virgin Money Share (the “FY2024 Dividend“), to be paid (subject to the approval of the Virgin Money Board) as part of Virgin Money’s ordinary course FY2024 dividend calendar or, if earlier, shortly prior to Completion.
· The total value of 220 pence per Virgin Money Share values the entire issued and to be issued share capital of Virgin Money at approximately £2.9 billion on a fully diluted basis and represents a premium of approximately:
o 38 per cent. to the Closing Price of 159.1 pence per Virgin Money Share on 6 March 2024 (being the last Business Day before the commencement of the Offer Period); and
o 40 per cent. to the volume-weighted average Closing Price of 157.5 pence per Virgin Money Share for the three-month period ended 6 March 2024.
Acquisition Overview
· The Boards of Nationwide and Virgin Money believe that the Acquisition will combine two complementary businesses, creating the second largest provider of mortgages and savings in the UK.
· Nationwide has grown over time through a series of historical acquisitions to become the UK’s largest building society. Nationwide remains wholly committed to being a building society and a modern mutual that meets its customers’ and members’ banking needs to a high standard.
· The Nationwide Board believes that the Acquisition will enable Nationwide to accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically, whilst providing a return that will further support Nationwide’s financial strength and deliver greater value to its customers and members.
· The Nationwide Board believes that the Acquisition will create a combined group with enhanced financial strength, including through access to greater diversity of funding, notably from business deposits, and the opportunity to generate improved returns. Nationwide expects to be able to capitalise on this financial strength to support the continued provision of its ‘Fairer Share Payment’ to eligible Nationwide members and member financial benefits via mortgage and savings rates that are, on average, better than the market average, along with other incentives.
Arrangements with Virgin Enterprises and Virgin Red
· Virgin Money licenses certain rights to use the “Virgin Money” brand from Virgin Enterprises pursuant to a brand licence agreement (the “TMLA“). Nationwide recognises the significant role that the “Virgin Money” brand has played in the development of Virgin Money over time. However, as part of its longer-term integration strategy, Nationwide intends for the Virgin Money business to re-brand over time.
· Accordingly, prior to the date of this announcement, Nationwide and Virgin Enterprises entered into the TMLA Amendment Agreement pursuant to which they agreed that, amongst other things, the TMLA would be terminated automatically on the fourth anniversary of Completion, following which the Virgin Money business will have a two-year period to re-brand.
· In addition, Nationwide has entered into the Virgin Red Exclusivity Agreement with Virgin Red pursuant to which the parties have agreed to engage in discussions for a six-month period following Completion with respect to a potential partnership relating to the expansion of the “Virgin Red” loyalty programme to customers of the Combined Group. However, there can be no certainty at this stage that any definitive agreement relating to such a partnership will be entered into following Completion nor as to the terms of any such agreement. Certain exclusivity commitments from each party would apply from the date of the Virgin Red Exclusivity Agreement until the end of the discussion period noted above.
· Further details regarding the TMLA (as it will be amended pursuant to the TMLA Amendment Agreement) and the Virgin Red Exclusivity Agreement are set out in paragraph 4 of this announcement.
· The amendment of the TMLA pursuant to the TMLA Amendment Agreement and the Virgin Red Exclusivity Agreement must be approved by an ordinary resolution of the Independent Virgin Money Shareholders (which requires more than 50 per cent. of the votes cast by Independent Virgin Money Shareholders on a poll to be cast in favour) for the purposes of Note 2 on Rule 16.1 of the Takeover Code (the “Virgin Resolution“). Virgin Group and Vieco Investments (an entity controlled by Sir Richard Branson), both of which hold Virgin Money Shares, will not be able to vote on the Virgin Resolution.
Recommendation
· The Virgin Money Directors, who have been so advised by Goldman Sachs International and J.P. Morgan Cazenove as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing their advice to the Virgin Money Directors, Goldman Sachs International and J.P. Morgan Cazenove have taken into account the commercial assessments of the Virgin Money Directors. Accordingly, the Virgin Money Directors intend to recommend unanimously that Virgin Money Shareholders vote in favour of the Scheme and the Acquisition Resolution(s) as the Virgin Money Directors who are interested in Virgin Money Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of 1,945,304 Virgin Money Shares representing, in aggregate, approximately 0.2 per cent. of Virgin Money’s total issued share capital.
· The Independent Virgin Money Directors also intend to recommend unanimously that the Independent Virgin Money Shareholders vote in favour of the Virgin Resolution as the Independent Virgin Money Directors who are interested in Virgin Money Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of 1,920,304 Virgin Money Shares representing, in aggregate, approximately 0.1 per cent. of Virgin Money’s total issued share capital. The terms of the TMLA Amendment Agreement and the Virgin Red Exclusivity Agreement are considered by Goldman Sachs International and J.P. Morgan Cazenove to be fair and reasonable. In forming this view, Goldman Sachs International and J.P. Morgan Cazenove have taken into account the commercial assessments of the Independent Virgin Money Directors.
· Sara Weller, the Virgin Money Director who is appointed to the Virgin Money Board as a representative of Virgin Enterprises, has not been involved in Virgin Money Board discussions relating to aspects of the Acquisition specifically concerning the TMLA, the “Virgin Money” brand, the Virgin Red Exclusivity Agreement or the Independent Virgin Money Directors’ recommendation in respect of the Virgin Resolution. The passing of the Virgin Resolution is a non-waivable condition to the Acquisition and, if not passed, the Acquisition will lapse and will not proceed to Completion.
Irrevocable undertakings
· Nationwide has received from Virgin Group and Vieco Investments irrevocable undertakings to vote in favour of the Scheme and the Acquisition Resolution(s) in respect of 188,852,373 Virgin Money Shares in aggregate, representing approximately 14.6 per cent. of Virgin Money’s total issued share capital.
· Accordingly, taking together the irrevocable undertakings received from the Virgin Money Directors, Virgin Group and Vieco Investments, Nationwide has received irrevocable undertakings to vote in favour of the Scheme and the Acquisition Resolution(s) in respect of a total of 190,797,677 Virgin Money Shares, representing, in aggregate, approximately 14.7 per cent. of the total issued share capital of Virgin Money.
· Under the terms of all the irrevocable undertakings received by Nationwide, if the Acquisition is implemented by way of a Takeover Offer, the relevant shareholders have also committed to accept the Takeover Offer. Further details of these irrevocable undertakings are set out in Appendix 3 to this announcement.
General
· It is intended that the Acquisition will be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (although Nationwide reserves the right to effect the Acquisition by way of a Takeover Offer, subject to the consent of the Panel and the terms of the Co-operation Agreement).
· The Acquisition will be subject to the Conditions and terms set out in Appendix 1 to this announcement, including, amongst other things, approvals by the requisite majorities of Virgin Money Shareholders of the Scheme and the Resolutions at the Court Meeting and General Meeting respectively, the receipt of regulatory approvals from the PRA, the FCA and the CMA, and to the full terms and conditions of the Acquisition which will be set out in the Scheme Document. The Acquisition will not be subject to any condition relating to the passing of a resolution by Nationwide’s members.
· In this announcement, unless the context requires otherwise, references to Virgin Money Shares include Virgin Money CDIs, references to Virgin Money Shareholders include Virgin Money CDI Holders and references to Virgin Money Shareholders voting in respect of the Scheme or the Resolutions or accepting a Takeover Offer shall include Virgin Money CDI Holders procuring the same.
· Virgin Money Shareholders will be able to elect to receive their Consideration in Australian dollars or New Zealand dollars instead of pound sterling (based on the prevailing exchange rates at a date to be determined), further details regarding which will be set out in the Scheme Document.
· The Scheme Document containing further information about the Acquisition, an expected timetable of principal events, steps to be taken by Virgin Money Ordinary Shareholders and Virgin Money CDI Holders, and the notices of the Meetings, together with the accompanying Forms of Proxy (for Virgin Money Ordinary Shareholders) and CDI Voting Instruction Forms (for Virgin Money CDI Holders) will be published in due course. A short extension to the customary 28-day period for publication of the Scheme Document has been requested of, and consented to by, the Panel having regard to, amongst other things, the availability of appropriate Court dates given the impact of the Court’s Easter vacation. Accordingly, it is expected that the Scheme Document will be published no later than 30 April 2024.
· Prior to the publication of the Scheme Document, Virgin Money will seek the necessary permission from the Court to convene the Court Meeting. A hearing of the Court before a High Court judge (the “Scheme Convening Hearing“) has been scheduled for 19 April 2024 for this purpose. At the Scheme Convening Hearing, amongst other things, Virgin Money will determine with the Court whether, for the purposes of voting at the Court Meeting, all Virgin Money Shareholders, including Virgin Group and Vieco Investments, can vote together as one class. The Court will consider whether the legal rights of Virgin Group and Vieco Investments, in the light of the arrangements with Virgin Enterprises and Virgin Red described above (and as further set out in paragraph 4 below) are sufficiently similar to the legal rights of the other Virgin Money Shareholders, or whether a difference in legal rights makes it more appropriate for Virgin Group and Vieco Investments to be distinguished as a separate class of shareholders. Virgin Money and Nationwide consider that all Virgin Money Shareholders should vote in a single class of shareholders. The Scheme Convening Hearing is expected to take place at the Companies Court, The Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 1NL, United Kingdom, and the time of the hearing will be set out on HM Courts & Tribunals Service’s website at www.justice.gov.uk/courts/court-lists. Virgin Money Shareholders have the right to attend in person or through counsel and make representations at the Scheme Convening Hearing.
· The Acquisition is expected to become Effective during Q4 2024, subject to the satisfaction (or, where applicable, waiver) of the Conditions and further terms set out in Appendix 1.
Chairman of Nationwide Building Society, Kevin Parry commented:
“Following full consideration and the appropriate due diligence, and after taking comments from members into account, the Board of Nationwide’s assessment is that the binding offer to acquire Virgin Money is in the best interests of the Society and its present and future members.”
Chief Executive Officer of Nationwide Building Society, Debbie Crosbie commented:
“This acquisition strengthens Nationwide and means we can offer more value and broader services for our current and future members. More people will experience the benefits of mutual ownership and the customer-focused approach of a building society. This includes Nationwide’s unique Branch Promise, which we are extending until at least the start of 2028. The Promise will also apply to Virgin Money branches.”
Chairman of Virgin Money UK PLC, David Bennett commented:
“The Board of Virgin Money believes that this strategic transaction recognises the strengths and opportunities in our business. We’re pleased to recommend the terms agreed with Nationwide, which deliver an attractive premium for our shareholders in cash and reflect the Group’s strong future prospects, combining two complementary businesses.”
Chief Executive Officer of Virgin Money UK PLC, David Duffy commented:
“The proposed combination with Nationwide presents an exciting opportunity to build on Virgin Money’s significant strategic and operational progress, including the consistent growth in our retail and business customers, deposits and target lending. Together the combined group can offer more great products and services to a larger customer base.”