Coventry Building Society made a tentative offer of £780m for the Co-operative Bank to its hedge fund owners. This could be the latest takeover among UK lenders.
The offer comes after nearly 4 months of exclusive discussions, which started in December. The deal would create a high-street challenger bank with nearly 5 million customers, and a £89bn financial balance sheet.
Both groups stressed that “there is no certainty” at this point that a takeover will take place.
The “non-binding offer” signals that sufficient due diligence was done in the past three months to convince Coventry’s management and the hedge fund owners of the Co-operative Bank that a deal might be in their interests.
Steve Hughes, chief executive of Coventry Building Society, stated that the society has a successful history. He believes this can be the foundation for a successful future, with great membership value and service at its core.
The Co-operative Bank has a stable financial position, is profitable, and offers products and services which complement ours. We are confident that we can bring the two organisations together over the next few years.
Both sides have agreed to continue their talks and “work together” in order to reach a definitive agreement. They added that “a further announcement will follow as appropriate”.
This deal will add to the wave of consolidation in UK lending. It follows Barclays purchase of Tesco Bank for £700m in February, and Nationwide Building Society’s £2.9bn acquisition of Virgin Money which was agreed on in March.
Coventry, along with its sister building society Nationwide has decided to not allow its members to vote on the possible deal. They claim that it is not required by the Building Societies Act.
Coventry stated that the board was informed of this decision by surveys and focus groups conducted among members, who clearly indicated their priority as maintaining our service quality and value proposition.
Since at least 2020 the Co-operative Bank was approached by New York-based Cerberus capital Management with a £270m offer.
Silver Point Capital’s owners – GoldenTree Capital, Anchorage Capital JC Flowers, Bain Capital Credit and Cyrus Capital – are more willing to negotiate a deal now that the bank is profitable again in 2021. This has improved its price.
The origins of the bank can be traced back to 1872, when the Co-operative Wholesale Society was founded. This body would later become the Co-operative Group and provide financial services to a wider co-operative group in Britain.
It ran into problems when a hole of £1.5bn was discovered in the bank’s accounts following its disastrous takeover in 2009 of Britannia Building Society. After the disastrous takeover of the Britannia Building Society in 2009, the bank was forced to separate from the Co-operative Group. It was then rescued by a consortium of hedge fund companies that took control in 2017.
The former chairman, Paul Flowers, a former Labour councillor and Methodist minister, , pleaded guilty in 2014 to possessing cocaine, crystal meth, and ketamine.
The lender was able to turn its fortunes around, returning profit for the first decade just in time to celebrate the 150th anniversary of the company in 2022.