Clydesdale owner sweetens terms of Virgin Money pursuit

Talks: New £1.6bn offer from CYBG sees deal deadline extended

Banking group CYBG has moved to sweeten its offer for Virgin Money.

A joint announcement to the London Stock Exchange confirmed the firms were in talks over the proposed all-share deal, which would give 1.2125 new CYBG shares for each Virgin Money share.

While it marks an improvement on the previous share exchange ratio of 1.1297, the recent decline in CYBG’S share price means it effectively values each stock at 354p versus the stronger value of 359p in early May.

The potential deal still values Virgin Money at around £1.6 billion.

CYBG – the owner of the Clydesdale Bank which recently unveiled long-term plans for a new headquarters building in Glasgow – added the revised proposal means Virgin Money shareholders would hold around 38% of the combined group, compared to 36.5% in the previous offer.

The news sent CYBG shares up as much as 3% in morning trading, making it one of the best performers on the FTSE 250, while Virgin Money stock nudged ahead.

The boards of both CYBG and Virgin Money believe the proposed deal will create the UK’S “first true national banking competitor”, offering a sound alternative to both SME and personal banking customers.

The sweetened deal came hours before a deadline yesterday that required CYBG to table a firm offer.

Virgin Money has now extended that deadline to June 18 to allow talks and due diligence processes to continue.

Ian Gordon, a banks analyst at Investec, said the revised offer “hardly appears over-generous” and failed to reflect Virgin’s true value.

“However, we believe that the current terms are unduly weighted towards CYBG shareholders, and fail to reflect full value for Virgin,” Mr Gordon added.

“We believe that a further improvement to terms may be required to get the deal over the line.”

However, equity analysts at Jefferies believe a successful deal “is more than probable now” noting that the new offer was revealed in a joint announcement, with both lenders “championing its strategic rationale and upfront premium”.

Shares in CYBG closed the day up 6.40p at 291.80p while Virgin Money stock was up 2p at 343.00p.

Picture: PA CYBG last month revealed plans for a new landmark headquarters building in Glasgow.