Mutually-owned Coventry Building Society and Manchester-based Co-operative Bank announced on Thursday afternoon that “non-binding heads of terms have been agreed for a potential acquisition of the bank by the society for a total cash consideration of £780 million.”
The building society said a vote by its members on a transaction “is not required.”
In a joint statement, the organisations said: “Discussions relating to the potential transaction are well advanced, the society has completed substantive due diligence to its satisfaction and the parties are working together to enter into definitive agreements in due course.
“There can be no certainty at this stage that an acquisition of the bank will occur and the potential transaction remains subject to the agreement of terms in a manner satisfactory to the parties.
“The potential transaction would also be subject to regulatory approval.”
Explaining the strategic rationale for a deal, the mutual and the bank said a combination “is expected to both deepen the enlarged group’s existing presence in mortgages and savings and extend the society’s propositions.”
They said a deal would create a combined group with a pro forma balance sheet of £89 billion and allow the society “to leverage its financial scale and a diversified funding base.”
The statement said: “The society would seek to integrate the bank gradually over several years, prioritising good customer outcomes following the completion of detailed planning and engagement with relevant stakeholders.
“The combined group’s customers would benefit from the enlarged range of products and propositions on offer.
“It is CBS’s current intention that eligible bank customers would become society members over a period of time post completion.
“The CBS Board has considered carefully whether a member vote is required. Having had regard to the requirements of the Building Societies Act 1986, and having taken professional advice, the board has determined that, if the potential transaction were to proceed, a member vote is not required.
“In coming to this decision, the board has been informed by member surveys and focus groups which clearly signalled their priorities as maintaining our value proposition and service quality.
“In addition, the cociety has consulted with a number of other stakeholders in recent weeks including regulators and certain ratings agencies to inform its evaluation of a potential transaction.”
Coventry Building Society CEO Steve Hughes said: “This is an exciting moment for the society. We have a very successful history, and we believe this could be the basis of a very successful future – with membership, great value and great service at its heart.”
‘The Co-operative Bank is a financially stable, profitable organisation with a shared heritage and products and services that complement our own.
“Its customers, colleagues, branches, mortgages and savings balances, and the additional products and services it provides, will make us stronger and enable us to continue offering the value and service that matters to members and customers alike.
“We’re confident that we have the people, capability and the financial strength to bring both organisations together successfully over a number of years.”