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Nationwide has claimed it is unable to give building society members a vote on its £2.9bn deal to buy Virgin Money under City takeover rules.
After announcing the acquisition on Thursday, the lender said it was able to press ahead with an overall offer of 220p-per-share after taking “appropriate legal and financial advice”.
This is the first time Nationwide has said it bypassed members to comply with legal reasons, having previously blamed a tight turnaround.
However, it comes after critics said Nationwide should have put the deal to members given the size of the deal.
The ultimate bid represents a 38pc premium on Virgin’s closing share price on March 6, the day before the deal was announced.
It is also the largest UK banking deal since the financial crisis, combining the nation’s biggest building society with the sixth-largest retail bank.
While Virgin Money shareholders will get a vote on the takeover, Nationwide said it does not need approval from members.
The building society said it is not “permitted” under the UK’s takeover rules to now make the Virgin Money deal conditional on a members’ vote.
This is because takeover rules prevent introducing a voluntary vote which would not legally be required under the 1986 Building Societies Act.
A Nationwide spokesman said: “Nationwide’s board agreed that a binding offer to acquire Virgin Money was in the best interests of the society and its present and future members, following full consideration and the appropriate due diligence, and after taking comments from members into account.”
The building society is understood to have conducted a survey of more than 150 customers and members which found that nearly half of participants felt positively about the deal.
Baroness Ros Altmann, member of the House of Lords, was among those urging Nationwide members to be allowed to vote in the takeover.
She told The Telegraph: “The point of a mutual is that members are involved. This is a huge amount of money – many of them will probably be disappointed that they were not consulted.”
The former pensions minister warned that snubbing members risks putting the mutual building model under pressure.
However, Labour’s Gareth Thomas MP, chair of the All Party Parliamentary Group on mutuals, said the deal will create a stronger building society and extend the benefits of the mutual model to new markets, such as business banking.
He said: “A thriving mutual sector benefits consumers and increases competition. More generally, we need to make it easier for other mutuals to grow and raise capital.”
Virgin Money’s board has recommended shareholders accept the deal, which is expected to be completed in the fourth quarter of this year.
Under the acquisition, Virgin Money will be required to pay a £250m exit fee to Sir Richard Branson, plus £15m in annual licensing fees to him as the lender rebrands to Nationwide.
The billionaire, who licenses the Virgin brand through Virgin Enterprises, is set to also receive a further £400m from his 14.5pc stake in the lender.
David Duffy, chief executive of Virgin Money, will step down once the deal closes and is expected to reap a £12m windfall. He will be replaced by Chris Rhodes, currently the finance chief at Nationwide.
The takeover will create a merged group with about 24.5m customers, more than 25,000 staff and nearly 700 branches.
Nationwide said that branches in each location where the combined group operates will remain open until the start of 2028 at least.