BY Richard Summerfield
Virgin Money Holdings is to be sold to CYBG in a $2.3bn all-stock transaction, creating a bank with around six million customers, making it the UK’s sixth largest bank.
Under the terms of the deal, Virgin Money shareholders will get 1.2125 new CYBG shares for every Virgin Money share they hold, and will end up owning about 38 percent of the combined business, which will be known as Virgin Money. CYBG has agreed a £12m a year licensing deal with Virgin Group owner Sir Richard Branson, rising to £15m after five years
Virgin Money and CYBG – the owner of Clydesdale and Yorkshire banks – have been in negotiations since May. Virgin was willing to negotiate with CYBG because of the improvement the company made to its original proposal. CYBG initially offered Virgin Money shareholder’s a 36.5 percent stake in the new company, though this offer was rejected. Virgin was also willing to accept the new proposal due to the “substantial synergy potential” and growth opportunities the deal represented.
The deal, which is still awaiting shareholder approval, will allow CYBG to benefit from greater scale. It will lead to potential cost savings and allow CYBG to benefit from Virgin Money’s significant high street presence.
Job losses are expected, however. The combined company will have around 9000 employees, however around 1500 jobs are expected to go – a reduction of around 15 percent. According to Ian Smith, CYBG chief financial officer, the £35m the company expects to save from “organisational redesign” would be derived from removing duplication among senior management. There would be “little overlap in our customer-facing roles”, he confirmed. In total, the deal is expected to generate £120m in annual pre-tax cost savings.
David Duffy, chief executive of CYBG said: “The combination of CYBG and Virgin Money will create the first true national competitor to the status quo in UK banking, offering a genuine alternative for consumers and small businesses.” The combination provided “the opportunity to build a best-of-both model that draws on the talent of both CYBG and Virgin Money”, he added.
Mr Duffy will lead the new company. Jayne-Anne Ghadia, CEO of Virgin Money, will act as a temporary senior adviser to the new Virgin Money.