CYBG – the former Clydesdale and Yorkshire Bank – has increased its offer to buy Virgin Money by 7% in an all-share bid to create Britain’s sixth biggest bank.
A preliminary bid was made last month and the new offer came as the deadline for a formal bid was about to run out.
A Virgin spokesman said its board had been encouraged to enter discussions because of ‘the improvement in the terms of proposal’ and added that Virgin saw ‘substantial synergy potential’ from the proposed takeover.
The new approach offers Virgin shareholders a bigger stake in the proposed group. The original offer was for 1.129 CYBG shares for each Virgin share, which would have given the Virgin shareholders a 36.5% of the new company. The new offer is for 1.212 CYBG shares for each of Virgin’s, increasing the proportion of Virgin’s share of the deal to 38%.
Based on CYBG’s current share price, the offer values Virgin at about £1.55 billion.
Looking to the future, the banks said they would expect to make cost savings by removing duplication, optimising IT spending and ‘rationalising’ their operations.
Analysts have suggested that, if the takeover goes ahead, the new group could save £46 million a year in operating costs by shutting down Virgin’s ‘redundant’ network of 74 branches.
It is understood that CYBG will want to continue using the Virgin name as it has a better brand image.
Virgin currently pays Richard Branson’s Virgin Group £8 million a year for the use of the name and CYBG is believed to be in separate negotiations to carry that on if the deal goes ahead.
Experts believe there is a fair chance of success in the negotiations as there is no viable alternative bidder. Sabadell had shown interest earlier in the year, but since then they have become tied up with the fall-out from the TSB IT crisis.
Virgin Money is a world-wide group of financial services companies, operating as individual licensed businesses. Originally called Virgin Direct in the UK, it was created in 1995, changing its name to Virgin Money in 2000.
Its size and customer base was massively increased in 2012 when it bought the so-called ‘good bank’ portion of Northern Rock which had previously been nationalised as part of the government’s rescue package for the financial services industry after the 2008 crisis.
In a joint statement the two banks said: “The Boards of CYBG and Virgin Money believe that the proposed combination would create the UK’s first true national banking competitor, offering both personal and SME customers an enhanced alternative to the large incumbent banks.
“The proposed combination would provide a powerful full-service banking offer for around six million personal and business customers, bringing together the complementary strengths of CYBG and Virgin Money.”
“Looking to the future, the banks said they would expect to make cost savings by removing duplication, optimising IT spending and ‘rationalising’ their operations.”