For all the talk of 'challenger banks’, no UK lender has yet been able to pose a genuine competitive threat to the 'big six' banking heavyweights. However, following agreement of terms for a CYBG (CYBG) and Virgin Money (VM.) all-share merger, that may be about to change. Under the revised terms of the offer initially unveiled earlier this month, Virgin Money's shareholders will receive 1.2125 new CYBG shares for each Virgin share, giving them a 38 per cent stake in the combined group.
Valuing each Virgin Money share at 371p – based on CYBG’s 306p closing price on 15 June – the offer represents a 19 per cent premium to Virgin Money’s share price the day prior to the offer initially being mooted. During the three years following the deal’s completion, CYBG will pay an annual £12m royalty fee to Virgin for the use of its brand. That will rise to £15m in year four, together with an additional yearly fee based on turnover from the fifth year. The Virgin Money brand will be rolled-out across the retail-side of the business over the next three years, with Clydesdale and Yorkshire branches renamed. CYBG is seeking to "validate" the Virgin brand with SMEs during that time, before that-side of the business is also re-branded. The merger is expected to deliver £120m of annual pre-tax cost synergies by the end of 2021.
CYBG chairman Jim Pettigrew, chief executive David Duffy and chief financial officer Ian Smith will continue their roles in the enlarged group. Meanwhile, Virgin Money chief executive Jayne-Anne Gadhia has agreed to act as senior adviser to Mr Duffy for a period – yet to be agreed – after the deal completes. Acceptances have already been received representing almost 35 per cent of Virgin's share capital.
