Coventry Building Society has reached a preliminary deal to purchase The Co-operative Bank in a transaction valued at £780 million. This monumental acquisition will enable the Co-operative Bank, which is currently owned by private equity funds, to return to being a mutual bank.
The merger follows Nationwide's recent £2.9 billion acquisition of Virgin Money, confirming the trend towards consolidation in the sector. Combining Coventry and The Co-operative Bank will form a colossal group with assets estimated at £89 billion.
Mid-sized UK banks need to grow their scale through mergers to effectively compete against larger peers.
However, even if agreed in principle, the acquisition remains subject to regulatory approval. Assuming the acquisition goes ahead, up to £125 million of the total consideration may be deferred for a period of three years, depending on Co-op Bank's financial performance.
The Coventry Building Society and Co-op Bank Story
Discussions on a potential transaction began in December, and the two parties have since reached agreement on the terms of the deal. Coventry Building Society is the UK's third-largest mutual lender, with around 2 million members and £62.5 billion in assets.
Meanwhile, Co-op Bank serves more than 2.5 million customers and over 90,000 businesses. It is supported by US investors such as Bain Capital Credit and JC Flowers.
As a result of the merger, Coventry will be able to increase its market share in current accounts, expand its branch network and enter the commercial banking sector. Upon completion of the transaction, Coventry plans to gradually integrate Co-op Bank over a number of years.
Being a mutual lender owned by its customers rather than its shareholders, Coventry is not obliged to put the acquisition to a vote of its members.
This contrasts sharply with Nationwide, which recently came under fire from some campaigners and members, calling for the Virgin Money deal to be put to a members' vote.
Co-op Bank Chief Executive Steve Hughes described the acquisition of Co-op Bank as an exciting opportunity. He pointed out that the acquisition of a "financially stable and profitable organisation with a shared heritage" marks an important milestone for the lender.
Co-op Bank's Journey
The planned deal marks a new phase for Co-op Bank, which has endured years of turbulence following its problematic takeover of Britannia Building Society in 2009.
With this acquisition, the bank was exposed to large bad debts and a capital deficit of £1.5 billion. Co-op Bank was eventually rescued by bondholders in 2017 and returned to profitability in 2021.
In recent years, Co-op Bank has been the subject of several unsuccessful acquisition attempts. Most notably, it was approached by US private equity firm Cerberus in 2020 and failed to merge with Sabadell-owned TSB the following year.