Yorkshire Bank owner makes £1.6bn offer for Virgin Money

Takeover would create top challenger

THE OWNER of Yorkshire Bank and Clydesdale Bank is hoping to become the UK’s leading challenger bank with a £1.6bn takeover of rival Virgin Money.

CYBG has tabled a tentative takeover of Virgin Money, which is reviewing the proposal.

The Yorkshire Bank owner said the combination would create the UK’s leading challenger bank offering both personal and SME customers a genuine alternative to the large incumbent banks.

It added that if the deal goes ahead, it will have a bigger customer franchise and national reach and the combination will deliver increased value for shareholders and wider benefits to customers.

CYBG said the Virgin Money brand would play a significant role in the combined group, with Virgin Money shareholders set to own around 36.5 per cent of the new business.

The deal would give 1.13 new CYBG shares for each Virgin Money share, effectively valuing each share at 359p and giving the lender a market capitalisation of around £1.6bn.

The deal could mean a major payout for founder Sir Richard Branson whose Virgin Group holds a controlling stake in the lender. A formal offer must be tabled no later than 5pm on June 4.

Analyst Gary Greenwood at Shore Capital Markets, said the combination would bring together CYBG’s SME banking capabilities and branch network with Virgin Money’s “better brand” and strong intermediary mortgage franchise.

However, he warned that there are likely to be hurdles to any tieup.

“While there is much logic in this combination and significant potential cost savings to be made, combining two banks is never a simple process,” he said.

“The challenges of bringing together and integrating two IT systems in particular represents a significant challenge, one that will no doubt receive significant regulatory attention given the recent issues at TSB, where the migration onto Sabadell’s platform has been a disaster.”

He said that regulators and politicians may also flag concerns that the deal combination removes a competitor from the market.

The merger would create Britain’s leading challenger bank, with six million personal and business customers.

Challenger banks emerged in the UK after the financial crisis to fill a gap in small business lending and capitalise on problems at the bigger banks.

CYBG made its London market debut in 2016 after it was spun off by National Australia Bank.

CYBG’s offer values Virgin Money at a premium of about 15 per cent.

CYBG‘s shares fell last month after the lender said it had increased provisions for repaying customers mis-sold payment protection insurance.

Last week, Virgin Money reported a strong credit performance and better-than-expected deposit growth from savers in the first quarter.

Shares in other mid-sized lenders Metro Bank and OnesavingsBank also rose in response to the takeover offer, a sign that long awaited consolidation of Britain’s so-called challenger banks could be starting.

Analysts said the deal makes logical sense, combining CYBG’s more extensive branch network with Virgin’s stronger brand, but that the initial offer was too low and would likely be rejected.

“We think Virgin shareholders will be lukewarm on the proposal,” said analyst John Cronin at broker Goodbody, adding that he expected a protracted takeover battle as the two parties jockey over price.

We think Virgin investors will be lukewarm on the proposal. John Cronin, analyst at broker Goodbody