Britain’s biggest bank merger since the financial crisis was clinched by this month’s sweetened bid from CYBG and will give Virgin Money shareholders, which include entrepreneur Richard Branson, about 38 per cent of the combined group.
The merged company will be about twice the size of its largest rival among Britain’s smaller banks and be able to draw on the firepower of the Virgin brand, for which it will pay a royalty.
CYBG chief executive David Duffy will lead the enlarged lender, with Virgin Money CEO Jayne-Anne Ghadia acting as a senior adviser for an unspecified period, as it throws down the gauntlet to the sector’s big guns.
Shareholders of both banks still need to approve the takeover, but John Cronin, analyst at stockbroker Goodbody, said both sides are likely to agree to the terms.
“Ultimately, we believe this is a great deal for both sets of shareholders and we expect it should receive their support,” he said.
The agreement comes after over a month of talks between the two lenders and beats the Monday afternoon deadline for CYBG, owner of Clydesdale and Yorkshire Bank, to make a firm offer or walk away under British takeover rules.
The banks said they expect to benefit from £120 million in annual pretax cost savings, helped by the loss of about 1,500 jobs, which would leave the group with a headcount of around 8,000.
The new lender would be the main bank for only 2 per cent of retail banking customers, compared with about 24 per cent for market leader Lloyds, according to data from industry body RFi Group.
CYBG Finance Director Ian Smith said the new bank will be “better rather than bigger”, leveraging technology to improve services for its enlarged customer base.
“Really the battleground for us is customer experience,” he said.
Virgin Group CEO Josh Bayliss said CYBG is the partner Virgin Money needs to continue to grow.
“We ... look forward to helping the combined business rebrand to Virgin Money,” he said.
In a statement, CYBG said: “The successful migration of Virgin Money customers to CYBG’s platform is a key focus.
“There will be no “big bang” migration on day one. The transfer will be phased over a period of three years.
“This technology platform is well-established and scalable and has already seen the successful migration of over two million Clydesdale and Yorkshire Bank customers without issue.”
Mr Duffy, the chief executive of CYBG, commented: “Together we will serve around six million customers, with the scale, capabilities and financial muscle to disrupt the status quo – and with a clear ambition to provide our customers with the best service in the UK. CYBG and Virgin Money have similar values, with strong roots in our regional heartlands and a shared vision for how the combined group can be a leading force in the banking model of the future, whilst maintaining our strong people-focused values. I am hugely positive about what we can achieve together with the talent that is available on both sides.
“The strategic rationale is clear and offers both sets of shareholders real value, material earnings accretion, and enhanced capital generation for the benefit of all shareholders, together with both firms’ customers, colleagues and local communities.”
Mr Bayliss, Virgin Group CEO, added “The Virgin Group started Virgin Money 23 years ago to shake up and disrupt the UK’s banking sector by putting our customers and colleagues first and to make a real difference to people’s lives.
“It introduced new ways of selling services and created innovative products under the Virgin brand. Over the years Virgin Money grew an outstanding business and with the acquisition of Northern Rock established a broader base to challenge Britain’s bigger banks.
“Thanks to the inspiring leadership of Jayne-Anne Gadhia and her hard-working team, Virgin Money has built an iconic brand.”