Nationwide claims it cannot give its building society members the right to vote on its £2.9bn purchase of Virgin Money due to City takeover regulations.
The lender announced the acquisition on Friday and said that it had been able to proceed with the offer of 220p per share after receiving “appropriate legal advice”
Previously, Nationwide had blamed a short turnaround time for bypassing members.
It comes after critics claimed that Nationwide should not have made the deal available to its members due to the size.
The final bid represents a premium of 38pc over Virgin’s closing stock price on the 6th March, the day before it was announced.
This is the biggest UK banking deal to have taken place since the financial crash, as it combines the country’s largest building society with its sixth-largest consumer bank.
Nationwide has said that it does not require approval from its members. Virgin Money shareholders can vote on the acquisition.
The building society has said that it is “not permitted” by UK takeover rules to condition on the Virgin Money deal being subject to a vote of its members.
The 1986 Building Societies Act does not require a vote to be taken by the members.
Nationwide’s spokesman stated: “Nationwide board decided that a binding acquisition offer for Virgin Money would be in the best interest of the society, its current and future members after full consideration, the proper due diligence and taking into account comments from members.”
According to reports, the building society surveyed more than 150 members and customers. The results showed that almost half of respondents were satisfied with the deal.
Baroness Ros Almann, a member of the House of Lords was one of those who urged Nationwide members to allow them to vote on the takeover.
She said, “The whole point of a cooperative is that the members are involved.” Many of them are likely to be disappointed because they weren’t consulted.
Former pensions minister warns that insulting members could put mutual building under pressure.
Labour’s Gareth Thomas, MP and chair of the All Party Parliamentary Group for Mutuals, has said that the deal would create a stronger construction society, as well as extend the mutual model into new markets such business banking.
He said: “A vibrant mutual sector benefits consumers, and increases competition.” We need to help other mutuals grow and raise money.
Virgin Money’s Board has recommended that shareholders accept the deal. It is expected to close in the fourth quarter this year.
Virgin Money is required to pay Sir Richard Branson a £250m exit payment, plus £15m per year in licensing fees, as it rebrands itself to Nationwide.
The billionaire who licensed the Virgin brand via Virgin Enterprises is also set to receive an additional £400m from the 14,5pc stake he holds in the lender.
David Duffy will step down as Virgin Money’s chief executive once the deal is closed. He should receive a windfall of £12m. Chris Rhodes will replace him, who is currently the finance director at Nationwide.
The merger will result in a group of about 24,5m customers and more than 25,000 employees, with nearly 700 branches.
Nationwide has announced that the branches at each of the locations where the combined group operates, will be open until 2028.