The deal, announced today, comes a month after Virgin Money bought out Abrdn’s 50% stake in its Virgin Investments business for £20m.

The boards of Nationwide Building Society and Virgin Money UK PLC said today they had reached "preliminary agreement" on the key terms of a “potential cash acquisition” of Virgin Money by Nationwide.

Nationwide has a Financial Planning offering provided by Aegon Financial Planning arm Origen Financial Services. Virgin has no Financial Planning arm.

With 16m Nationwide customers and 6.6m Virgin Money customers the new combined business would potentially serve 22.6m customers.

Nationwide will remain a mutual after the prospective deal is concluded.

As part of the deal Virgin Money ordinary shareholders and CHESS Depositary Interests holders would receive 220 pence in cash for each Virgin Money ordinary share comprising 218 pence per Virgin Money Share in cash and a proposed dividend of 2 pence per Virgin Money Share.

In addition to the total value of 220 pence per Virgin Money Share, eligible Virgin Money Shareholders would continue to be entitled to receive and retain the final dividend of 2 pence per Virgin Money Share for 2023.

The total value of 220 pence per Virgin Money Share (excluding the Final Dividend) represents a premium of 38% to Virgin Money’s share price as of 6 March, according to the firms.

The deal values the entire issued share capital of Virgin Money at approximately £2.9 billion.

The Virgin Money name will continue for the 'medium term' but will then gradually be integrated under the Nationwide brand over a six year period. 

Virgin Money UK chair David Bennett, said: “The board of Virgin Money is pleased that Nationwide recognises the considerable strengths and opportunities that exist across our business, with the potential acquisition delivering attractive value for our shareholders. We are confident that a combination would support an exciting new chapter for Virgin Money to benefit from Nationwide’s scale and ambition.”

Virgin Money CEO David Duffy said: “This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new Tier 1 bank in recent history. The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.”

Nationwide chairman Kevin Parry said: “A combination with Virgin Money would accelerate Nationwide’s strategy and create a stronger, and more diverse, modern mutual. The combination would increase Nationwide’s scale and financial strength, put us in a stronger position to continue to provide Fairer Share Payments to eligible Nationwide members, and offer rates for mortgages and savings that are, on average, better than the market average.”

Nationwide CEO Debbie Crosbie said: “Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches, as part of our ‘Branch Promise’ and leading levels of customer service.

“We believe the combination would create a stronger and more diverse business that will be better placed to deliver value to our members and customers, both now and in the future.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown, commented: "Nationwide intends to swallow challenger bank Virgin Money, putting it in a position to challenge the might of the four big high street banks. The £2.9 billion deal came as a surprise but given the building society’s strategic aim it’s makes sense.

"It wants to bolster and diversify streams of funding, tap into business deposits, and give a rocket boost to the development of its services. A mutual taking over a listed bank is a rare move, but Nationwide clearly does not want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting-edge financial services."

Financial Planning Today Analysis: This deal would create a High Street behemoth at a time when many banks are withdrawing from the High St. It will enable Nationwide to reach many more people with its products and Virgin Money will be able to reach new people too although it is not completely clear if the Virgin Money brand will be retained in its entirety. Consolidation of branches and some units seems likely so it may not be completely good news for staff. From a Financial Planning point of view, unless other plans are announced, Nationwide's Financial Planning arm would get 6m new Virgin customers to reach, an important boost.