Nationwide offers to buy Virgin Money UK in 2.9 billion pound deal

Nationwide Building Society has agreed to buy Virgin Money UK in a potential 2.9 billion-pound ($3.69 billion) all-cash deal that would create Britain's second-largest savings and mortgage provider, Report informs referring to Reuters.

The total value of 220 pence per Virgin Money share represents a premium of 38% as of March 6 and would be funded through Nationwide's existing cash resources, Nationwide said.

The proposed deal is the latest example of a bounce in merger and acquisition activity among British lenders, some of whom are seeking to bolster their balance sheets against a possible rise in souring loans as recession bears down on UK households and businesses.

Barclays said last month it would buy the banking operations of Britain's biggest supermarket group Tesco for about 600 million pounds.

Analysts said the Nationwide-Virgin Money transaction could increase competition in the UK 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.

The transaction might even prompt copy-cat deals among lenders keen to retain market share, others said.

"With the outlook for the UK economy stabilising, we wouldn't be surprised to see more deals like this announced," RBC Capital Markets analyst Benjamin Toms told Reuters.

"UK bank valuations are relatively cheap for the sustainable returns they offer."