UK bank Clydesdale makes takeover bid for Virgin Money

Virgin Money said on Monday that it had received an all-stock takeover offer from rival CYBG Plc, a proposal that values the British lender at about £1.6 billion (€1.8 billion).

The move is being scrutinised by the UK’s financial markets watchdog. The Financial Conduct Authority is looking into last week’s 15 per cent jump in the value of Virgin Money’s shares, which saw them rise from 271p on Friday, April 27th, to close at 312.4p on Friday, May 4th.

The merger would create Britain's leading "challenger" bank, with 6 million personal and business customers, said CYBG, the owner of Clydesdale Bank and Yorkshire Bank, in a statement. CYBG is led by former AIB chief executive David Duffy.

Challenger banks emerged in Britain after the financial crisis to fill a gap in small business lending and capitalise on problems at the bigger banks. CYBG, which made its London market debut in 2016 after it was spun off by National Australia Bank, said Virgin Money would own about 36.5 per cent of the combined company.

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Proposals

Virgin Money shareholders would receive 1.13 new CYBG shares for each Virgin Money share.

Virgin Money, founded and partly owned by entrepreneur Richard Branson, said its board was reviewing the proposal.

Virgin Money shares have risen about 10 per cent this year and closed at 312 pence on Friday, while CYBG shares were down about 6 per cent in the same period and closed at 318 pence. Markets were closed on Monday in London for the May Day holiday.

Based on those prices, CYBG’s offer values Virgin Money at about 359 pence per share, or about £1.60 billion, a premium of about 15 per cent. CYBG shares fell last month after the lender said it had increased provisions for repaying customers missold payment protection insurance. Last week, Virgin Money reported a strong credit performance and better-than-expected deposit growth from savers in the first quarter.

Too low

Analysts said the deal, made public on Monday, made 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 Irish broker Goodbody, adding that he expected a protracted takeover battle could now happen as the two parties jockey over price. Virgin said on Monday its board was reviewing the CYBG offer.

Britain’s mid-sized banks are being squeezed by competitive pressures from both the big established players and smaller newcomers, so analysts and investors have been expecting consolidation to kick off at some stage. The biggest banks can reap economies of scale from their branch networks and ability to invest heavily in new technology.

– Reuters