The offer represents a 38% premium on Virgin’s closing share price and would create a lending behemoth with £366.3bn in assets and £283.5bn in total lending and advances. Virgin’s shares surged 36% following the announcement.

The acquisition would accelerate consolidation among the UK’s smaller banks and ends months of speculation about Virgin’s future. The proposed deal follows recent merger talks involving Coventry Building Society and the Co-operative Bank, as well as Barclays’ acquisition of Tesco Bank’s retail operations.

Virgin Money’s chairman, David Bennet, described the offer as “delivering attractive value for our shareholders”.

CEO of Virgin Money, David Duffy, added: “This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new Tier 1 bank in recent history. The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.”

Nationwide’s chairman, Kevin Parry, stated the deal would “accelerate Nationwide’s strategy and create a stronger and more diverse modern mutual”.

As part of the proposal the Virgin brand would be phased out over six years post-acquisition.

CEO of Nationwide Building Society, Debbie Crosbie said: “Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches, as part of our ‘branch promise’ and leading levels of customer service.

“We believe the combination would create a stronger and more diverse business that will be better placed to deliver value to our members and customers, both now and in the future.”