LONDON: CYBG Plc agreed to buy Virgin Money Holdings UK Plc for about 1.7 billion pounds (USD2.3 billion) in an all-stock transaction, creating a bank with about six million customers to challenge Britain’s largest lenders.
The purchase of the Richard Branson-backed bank gives consumer and business lender CYBG greater scale, potential cost savings and access to the firm’s presence on the high street. The deal adds to a number of transactions among a handful of smaller banks in the UK as they seek to raise funds and steal business from the nation’s top lenders. The combined company will have around 80 billion pounds of assets, according to a statement Monday.
Virgin Money’s shares rose 2.4% to 363.4 pence as of 8.08 am in London. Through Friday’s close, the stock had gained about 14% since CYBG, formerly the British division of National Australia Bank Ltd., initially made an offer in May. It slightly sweetened its all-stock proposal earlier this month by offering Virgin Money shareholders more of the merged company.
“Combining these two businesses has much strategic logic, in our view, with CYBG bringing strengths in SME banking and current accounts, complementing Virgin Money’s well-recognized brand and strength in credit cards,” Gary Greenwood, an analyst at Shore Capital, said in a note to investors.
Virgin Money shareholders would receive 1.2125 new CYBG shares under the offer. Owners of the Branson company will own about 38% of the combined group. The tie-up is expected to generate 120 million pounds of annual pre-tax cost synergies by the end of the financial year ending September 2021, the statement said.
CYBG Chairman Jim Pettigrew, Chief Executive Officer David Duffy and CFO Ian Smith will retain their current positions in the new group, according to the statement. Jayne-Anne Gadhia, CEO of Virgin Money, will stay on as an adviser for an unspecified time.
“By combining two of the UK’s leading challenger banks, we will create a national, full-service bank with the capabilities needed to compete effectively with the large incumbent banks,” Duffy said in the statement. “The strategic rationale is clear and offers both sets of shareholders real value, material earnings accretion and enhanced capital generation.”