CYBG, the UK banking group led by former AIB chief executive David Duffy, improved a takeover offer for Virgin Money, offering investors in its rival a greater stake in the combined group in order to create the UK's sixth-largest lender.
The company, which owns the Clydesdale and Yorkshire banks, said in a stock exchange announcement on Monday that Virgin Money shareholders would take a 38 per cent in the merged entity compared with 36.5 per cent outlined in an initial bid tabled last month. Virgin Money investors would also be entitled to retain any dividend declared and paid for the first half of the year.
Based on CYBG’s closing price on Friday, the stock-based offer values Virgin Money at £1.6 billion (€1.8 billion).
Shares in Virgin Money, which had gained about 10 per cent since the preliminary offer was tabled, rose by as much as 0.6 per cent to £3.45. CYBG surged by up to 4.1 per cent to £3.038. The board of Virgin Money has decided to enter talks with CYBG.
John Cronin, an analyst with Goodbody Stockbrokers, said that investors in CYBG are most likely relieved that the group had not increased its offer substantially.
“VM’s willingness to engage with CYBG is telling – which is particularly interesting, given that CYBG has not [yet] incorporated a cash element to its proposed terms,” said Mr Cronin.
The UK Panel on Takeover and Mergers has given CYBG until close of business on June 18th to confirm either a firm intention to make a firm offer or face the possibility of being prohibited from making another approach for six months.
“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,” both companies said on Monday.
Mr Duffy left AIB in 2015 to be become chief executive of CYBG and presided over the company’s £1.58 billion (€1.8 billion) flotation the following February.
AIB, where Mr Duffy had done much of the early heavy lifting following the crash preparing the bank for a return to the stock market, floated 16 months later.
The takeover of the Richard Branson-backed Virgin Money would create a so-called challenger bank with about six million customers and about £80 billion (€91 billion) of assets. Still, the bank would lag far behind the UK's four biggest banking groups, Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland.