Shares in Virgin Money rocket on offer from CYBG

● Clydesdale Bank owner in surprise challenger bank consolidation play

Shares in Virgin Money, of which airlines-to-music magnate Sir Richard Branson owns about 35 per cent, leapt 10 per cent yesterday after receiving a shock £1.6 billion bid approach from fellow challenger bank, CYBG.

Both lenders have now confirmed that CYBG, owner of the Clydesdale Bank and Yorkshire Bank, made a preliminary and conditional offer for the bank on Bank Holiday Monday when the market was closed.

The mooted deal, which Edinburgh-headquartered Virgin Money said yesterday it was considering, would give 1.1297 new CYBG shares for each Virgin Money share, effectively valuing each share at 359p each.

Branson, whose business interests also include the West Coast mainline, a rail joint venture with Scots entrepreneur Sir Brian Souter’s Stagecoach group, founded Virgin Money 25 years ago. Its chief executive is Jayne-anne Gadhia, one of the most high-profile women in British business.

CYBG 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: “With this further strengthened customer franchise and national reach, CYBG believes the combination would deliver increased value for shareholders and wider benefits to other stakeholders.”

CYBG pledged 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 in an allshare deal.

Virgin Money’s shares closed up a whisker under 10 per cent, or 30.9p, at 343.3p, while CYBG’S shares closed the session ahead 1.1 per cent, or 3.6p, at 321.6p. A formal offer must be tabled by 5pm on 4 June.

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

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

“The challenges of bringing together and integrating two IT systems in particular represents a significant challenge, one that will not doubt receive significant regulatory attention given the recent issues at TSB, where the migration on to Sabadell’s platform has been a disaster.”

He also added that regulators and politicians might be wary of a combination that removes a competitor from the market.

CYBG jolted its investors last month by revealing it had taken what one analyst branded a “disastrous” additional £350 million financial hit after seeing a surge in payment protection insurance (PPI) claims. It made its London market debut in 2016 after it was spun off by National Australia Bank.