Coventry Building Society to acquire Co-op Bank in £780m deal

Coventry Building Society has agreed terms to acquire the Manchester-based Co-operative Bank in a £780m deal, a move that will create a group with a balance sheet of £89bn. 

Non-binding heads of terms have been agreed for the potential cash acquisition, after Coventry and Co-op entered into exclusive talks on December 21.

Up to £125m will be deferred for three years, subject to the future performance of the Bank as it is integrated over several years. Coventry says it intends for eligible Bank customers to become Society members over a period of time post-completion.

In a joint statement, both parties said there can be no certainty at this stage that the deal will complete and will also be subject to regulatory approval. 

The deal would create a combined group with around five million clients, more than 110 branches and a mortgage portfolio of around £70m.

The potential merger has not been put to a vote amongst Coventry’s two million members after it “considered carefully whether a member vote is required” under the Building Societies Act 1986.

Instead, the lender said that it came to the decision, by being “informed by member surveys and focus groups which clearly signalled their priorities as maintaining our value proposition and service quality”.

Nationwide came under fire for making the same decision with its £2.9bn merger with Virgin Money.

In 2013, the Co-operative Bank’s attempt to acquire the branch network that later became TSB collapsed amid its own crisis. The bank, then part of the broader Co-op Group, secured a £1.5bn rescue from American hedge funds.

Subsequently, in 2017, it required another bailout from investors, with Bain Capital Credit and JC Flowers taking a 10% stake. The remaining equity is owned by a syndicate of hedge funds.

Chief Executive Officer of Coventry Building Society, Steve Hughes said in the joint statement: “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.”