CYBG share price fillip after revised offer for Virgin

● Analysts have mixed views on odds of sweetened bid from Clydesdale owner

Shares in Clydesdale Bank owner CYBG closed up by more than 2 per cent yesterday after the lender sweetened its offer for Virgin Money.

But analysts differed on their expectations of whether the revised bid will be enough to secure the deal, with some concern that it does not reflect adequate value for Virgin.

A joint announcement by the twofirmsconfirmedtheywere in talks over the proposed allshare 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 that it effectively values each stock at 354p versus the stronger value of 359p in early May. The potential deal still values Virgin Money at about £1.6 billion.

CYBG - which also owns Yorkshire Bank and B brands added that the revised proposcybg al means Virgin Money shareholders would hold around 38 per cent of the combined group, compared to 36.5 per cent in the previous offer.

The boards of both CYBG and Virgin Money said they believe the proposed deal would create the UK’S “first true national banking competitor” and would offer a “powerful full-service banking offer for around six million personal and business customers”.

The sweetened deal came in hours before a deadline yesterday that required CYBG to table a firm offer, but Virgin Money has now extended that to 18 June to allow talks and due diligence processes to continue.

Ian Gordon, a banks analyst at Investec, said the revised offer “hardly appears overgenerous” and that the valuation of around £1.6bn is “low”.

“Our view remains that the strategic rationale for the proposed combination is sound, and that cost synergies should (conservatively) amount to 10 to 20 per cent. However, we believe that the current terms are unduly weighted towards shareholders, and fail to reflect full value for Virgin,” 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”.

Analysts also pointed out that no other bidder has entered the process in the last four weeks.

Furthermore, Alasdair Ronald, senior investment manager at Brewin Dolphin Glasgow, said it is “believed that the revised terms will be enough to win control”.

He added that as long as CYBG does not overpay for Virgin Money, the deal “should be good for the group in the long term and would create a new competitor to Britain’s biggest banks. There is value in challenger banks at present and an increasing interest-rate environment should be good for profitability.” Share in CYBG closed up 2.2 per cent at 291.8p.