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The Competition and Markets Authority (CMA) announced Friday it has initiated a formal investigation into Nationwide Building Society's proposed £2.9 billion ($3.7 billion) acquisition of Virgin Money. The merger would result in a combined entity with assets totaling approximately £366 billion.

Nationwide-Virgin merger faces competition probe : Initial Phase One Investigation

The CMA has begun a phase one investigation to determine whether the merger could significantly reduce competition in any U.K. market. The authority is calling for comments from interested parties by June 14, ahead of its decision on whether to proceed to a phase two investigation, set for July 26.

"The deadline for the CMA to announce its decision whether to refer the merger for a phase two investigation is July 26," the competition watchdog stated briefly. Nationwide did not immediately respond to a request for comment, while Virgin Money UK PLC declined to comment.

Industry Reactions and Transaction Details

Laith Khalaf, head of investment analysis at AJ Bell, noted that "Nationwide will be watching nervously as increasingly interventionist U.K. competition authorities weigh whether to escalate an initial probe into its deal for Virgin Money to a full-blown investigation."

Nationwide revealed in March that it would purchase Virgin Money in a cash transaction, offering 218 pence per share, plus an additional 2 pence as a dividend, valuing Virgin Money UK at £2.9 billion. The deal is expected to create the second-largest provider of mortgages and savings in the U.K.

Regulatory and Shareholder Approvals

The transaction, structured as a scheme of arrangement under the Companies Act 2006, requires approval from 75% of Virgin Money UK shareholders at a general and court meeting. Additionally, the merger necessitates regulatory approvals from the Prudential Regulation Authority and the Financial Conduct Authority. The companies aim to finalize the deal by December.

Nationwide-Virgin merger faces competition probe : Legal Advisors

Nationwide has enlisted Slaughter and May as its legal adviser, with a team led by partner David Watkins. Clifford Chance LLP is advising Virgin Money UK, with partners David Pudge and Katherine Moir heading the team.

Conclusion

The Nationwide-Virgin merger faces a critical competition probe that could shape the landscape of U.K. financial services. As the July 26 decision date approaches, all eyes will be on the CMA's next move.