What’s next for the campaign

26 April 2024

BACKGROUND

The campaign began with a simple objective, as per the title of the petition started by Mikael Armstrong on 21 March 2024: to Give Nationwide Members a Say on the purchase of Virgin Money. It now has over 4,000 signatories.

The immediate opportunity that the campaign identified was to request a Special General Meeting (SGM) to affect a vote, by proposing a simple resolution to the society’s members: “the takeover of Virgin Money must not proceed without the approval of a majority of Nationwide members“.

Nationwide has since deemed that the SGM request was not valid, and, due to the SGM 4 month lockout period that surrounds the Annual General Meeting (AGM) under the society’s rules, the campaign needs to evolve into promoting some short, medium and long term goals – all under the same objective above.

SUPPORTER CATEGORIES

There are a number of different angles to the call for a member vote on the proposed takeover, and the supporters of this campaign are a broad community who all want Nationwide members (as customers and owners of the society) to decide if it should go ahead (as expected under law), rather than it be left solely at the discretion of the elected board and their appointed executives, for different reasons that we categorise into three groups:

Category 1 – “the democrats”

Some people are simply outraged that the board has chosen not to put the deal to a member vote, as is expected under law, under the principles of a democratically governed mutual, and based on the previous precedent (e.g. donating just 1% of the society’s profit to charity was put to a member vote in the past).  

Category 2 – “the undecided”

Some people are concerned that the deal is being rushed through, without sufficient understanding of what the impact would be. Nationwide has not been transparent about this to date and to this day only put forward positive headlines without detail, and with no risks, costs or other potential downsides. Nationwide also communicates the deal as if it’s a 100% certainty, using language like “will” and “when”, rather than “would” and “if”. Key questions for this group include, for example:

(a) Would the society be less safe because loss absorbing capital reserves will be reduced to pay Virgin Money shareholders for the deal, to integrate and restructure the combined group thereafter, and because Virgin Money isn’t as well capitalised as Nationwide?

(b) Would borrowing be more expensive or savings rate lowered due to the likely substantial integration and restructuring costs (6+ years after the deal closes), or because competition is reduced in the UK market?

(c) Would service levels slip during this period as management and staff attention is focused on the 18 month post-transaction review, and the anticipated 6+ years of integration and restructuring (as anticipated by Nationwide in the takeover documents)?

Nationwide’s own polling of 10,000+ members suggests this “neutral” or undecided group in the largest, with 48% neutral on the deal because members don’t know enough about what the deal will mean to them. 

Category 3 – “the against”

Some people have already decided that they are against the deal and want members to group together to stop it. The reasons vary (the list of red flags is a long one), but these are the most commonly cited:

(a) the benefits of the acquisition do not outweigh the costs and risks,

(b) most mergers and acquisitions don’t deliver lasting benefits to the organisations’ customers,

(c) the board and management are motivated for the wrong reasons e.g. bigger is not always better, management get bigger bonuses, but ordinary members may see their benefits reduce (e.g. the value of ‘Fairer Share’ payments),

(d) the damage to the building society culture and ethos that is caused by buying a bank e.g. moving into new areas that are riskier like business banking is the wrong strategic direction for a building society, that should be a simple and safe institution primarily focused on mortgages and savings. 

Some people may not fit neatly into one of these categories, or may fit into a combination of categories, including all three. But all three categories of members are united in wanting their voices heard, albeit for different reasons.

WHAT’S NEXT?

The key dates to consider, which could produce potential obstacles to the proposed deal:

• Short term (i.e spring)
  • Virgin Money shareholders vote on the deal (May 2024)
• Medium term (i.e. summer)
  • The Nationwide Annual General Meeting (voting opens in June, meeting held in July)
  • Changes to the law (at any time)
  • Intervention by government (at any time)
  • Regulatory objection by the CMA, FCA or PRA (at any time)
• Long term (i.e. autumn)
  • The possibility for a second attempt at a Special General Meeting (September)
  • Deal completion (From October onwards – start of “Q4 2024”)

As you can see from the above, there are several routes open to the campaign to disrupt the process as the deal is currently not expected to complete until Q4 2024.

We are therefore proposing a list of different actions that the campaign, and its supporters, can take – with the aim to either create time for greater consideration of the deal by stakeholders, or to pause the deal indefinitely until all members have been adequately consulted and the deal put to a vote.

This is not an exhaustive list, and some actions will remain private to the campaign to maximise their impact, but some examples include:

1. Pressure the Nationwide board to change its opinion on the deal – and on a member vote

Members can continue to act to help get their voices heard throughout the process, with the goal of getting the board to reconsider the wisdom of the proposed deal in the face of growing member backlash and discontent. Supporters could for example write to board members, or take other forms of direct action e.g. removing most of their money from Nationwide to earn a better return elsewhere, and other forms of legal protest (e.g. boycotts, demonstrations). The goal here is to reach other, like-minded members, have them join and support the campaign, and ultimately help the board realise they are fighting a losing battle with the members that elected them, and who may choose not to re-elect them at the AGM in July (voting opens in June).

2. Convince 25% of Virgin Money shareholders – who do have a vote on the deal – to either abstain, or reject the recommended offer from Nationwide

It’s possible the deal could fall apart if some Virgin Money shareholders either abstain or hold out for a higher offer from Nationwide (that may not materialise), or another bidder could emerge at that juncture. The list of Virgin Money major shareholders is relatively concentrated in a few, mostly Australian investment firms, following the demerger of what was CYBG plc [Clydesdale & Yorkshire Banking Group] from National Australia Bank (NAB) — CYBG was subsequently rebranded Virgin Money.

Some of the investment management firms may not vote their shares (i.e. abstain). Some of these firms, or the underlying shareholders, may decide they are against the proposed deal, because they want to hold out for a higher price (as proposed by investment analysts KBW). Nationwide’s initial offer for Virgin Money was rejected, requiring Nationwide to up its offer to almost 40% above the market price.

3. Ask regulators to investigate and intervene if appropriate, given the proposed takeover is subject to approval by the Competition & Markets Authority (CMA), the Prudential Regulatory Authority (PRA, a division of the Bank of England), and the Financial Conduct Authority (FCA).

The campaign and members have already made direct representations to the regulators e.g. raising concerns with the FCA – and can continue to amplify and share these valid concerns. However, regulators rarely disclose how and what they are doing as these matters are typically kept as part of private dialogue between regulators and the firms they oversee – so it will be hard to judge what, if any, impact the campaign is having in this area.

4. Lobby the government to intervene

There are a few different ways that the government could potentially intervene in this deal if suitably motivated:

(a) Treasury powers under current law e.g. invoke subsection 10 of Section 92A of the Building Societies Act (1986) if necessary.

(b) Use of new, emergency legislation

(c) Change the current law to make it more stringent, less open to interpretation, and easier to scrutinise board opinion’s when it comes to acquisitions. There is a Building Societies Act amendment process currently underway in Parliament, with a second reading in the House of Lords scheduled for May 2024. At present it does not propose any tightening to the key part on acquisitions, section 92A, but the proposed bill could be amended further in the Lords before it returns to the Commons.

5. Serve a legal injunction against Nationwide given concerns that the board’s / society’s interpretation of Section 92A of the Building Societies Act (1986) may not be correct

This will require legal advice and legal representation, i.e. money. We are investigating options to fundraise for this, and to support other key campaign functions, if required.

6. Vote against the deal if a resolution is proposed at the AGM in July (the agenda is yet to be confirmed)

This would seem contrary to the position of the board to date – and to offer something the board doesn’t consider a legal requirement would appear to fall foul of the Takeover Code. But we hope the board does change its mind regarding the interpretation of the law. If a vote is deemed a legal requirement by the board, the Takeover code is then subservient to the law.

THANK YOU
– AND PLEASE KEEP THE IDEAS COMING

Thank you all for your support. The contributions you have each made have been invaluable to the campaign to date.

We will keep you updated on developments – via this website, updates sent out via Change.org and our own email list – if you’d like to subscribe please send an email with the subject SUBSCRIBE. We have published our privacy policy and take our responsibilities to protect your data seriously.

In the meantime, if you would like to add your own suggestions or ideas to support the campaign, please join our Facebook group, comment below, or email us.