Yorkshire Bank owner buys Virgin Money for £1.7bn

UPDATE 5 — Clydesdale and Yorkshire Bank owner CYBG said on Monday it finally clinched an all-share deal to take over Newcastle-based rival Virgin Money in a deal that values Virgin Money at around £1.7 billion.

The deal will see the combined firm use the power of the Virgin Money brand, paying a royalty to licence the brand “for financial services in respect of retail, SME and corporate customers in the UK.”

Virgin Group CEO Josh Bayliss said: “We … look forward to helping the combined business rebrand to Virgin Money.”

CYBG said the deal is expected to lead to £120 million of annual savings and the elimination of up to 1,520 jobs among the combined workforce of about 9,500.

“As a result of the significant operational overlap between CYBG and Virgin Money, the combined group will be able to reduce the duplication of roles, leading to a decrease in the total number of FTEs (full time equivalents),” said CYBG in its stock exchange statement.

“It is currently expected that the total number of FTEs of the combined group, being approximately 9,500 FTEs, will reduce by approximately 16 per cent, some of which will take place via natural attrition.”

The combined group will be headquartered in Glasgow — and the registered offices of CYBG and Virgin Money will remain in England.

CYBG intends to maintain a “substantial base” for Virgin Money in Gosforth, Newcastle, for at least three years following completion of the deal.

The takeover has to be approved by CYBG and Virgin Money shareholders.

CYBG’s CEO David Duffy, its chairman Jim Pettigrew and its CFO Ian Smith will retain their current positions in the combined group.

CYBG said Jayne-Anne Gadhia, CEO of Virgin Money for more than 10 years “has agreed, in principle, to support the combined group as a senior adviser to the CEO (in a consultancy role) for a period of time beyond completion of the offer, on terms to be agreed …”

The combined firm will have about £69.5 billion in customer loans, £59.2 billion in customer deposits, and £83.5 billion of total assets. About 83% of customer loans, or £57.8 billion, are mortgages.

The deal is on the same terms as the increased bid CYBG unveiled earlier this month and will see Virgin Money shareholders receive 1.2125 CYBG shares per Virgin Money share and own about 38% of the combined firm.

CYBG said: “Based on the closing price of 306 pence per CYBG Share on 15 June 2018 … the offer values each Virgin Money share at 371 pence and Virgin Money’s ordinary shares on a fully diluted basis at approximately £1.7 billion, representing a premium of … 19 per cent to the closing price of 312 pence per Virgin Money Share on 4 May 2018 (being the last business day prior to the commencement of the offer period …”

Duffy 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.

“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.

“We are bringing together CYBG’s 175-year heritage in serving retail and SME customers and advanced digital technology, with the iconic Virgin Money brand and consumer champion credentials.

“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.”

Gadhia said: “When Virgin Money was established in financial services in 1995, we vowed to change the world of banking for good.

“We were the first UK financial services company to offer investment products directly to customers.

“We transformed the mortgage market and, as a result, saved customers hundreds of millions of pounds by introducing daily mortgage interest calculations.

“In January 2012 we successfully acquired Northern Rock and built a broader business from the solid foundations and wonderful people of the North East of England.

“We aim to offer good value to customers, treat employees well, make a positive contribution to society and create value for shareholders.

“Since January 2012 we have more than doubled our customer lending and delivered strong and growing profitability.

“There are now just over 3,200 Virgin Money colleagues serving 3.4 million customers.

“Since our IPO in November 2014, we have delivered against our strategic and financial objectives, demonstrating balanced organic growth while maintaining our responsible approach to lending.

“The operating environment since our IPO has presented many challenges and we have been delighted by how our colleagues have responded.

“Virgin Money’s customer focus and nimble approach to distribution and pricing, coupled with a prudent focus on cost management and asset quality, have enabled us to drive strong returns for shareholders.

“Our intention has always been to make everyone better off.

“The offer reflects confidence in our strategy, our track record of delivery and the complementary strengths of the two businesses.

“The combination of Virgin Money with CYBG will have greater scale to challenge the big banks.

“It will also accelerate the delivery of our strategic objectives, particularly the expansion of the products we offer to customers.

“I am especially pleased that we have received a number of important commitments from CYBG.

“The Virgin Money Foundation will continue to contribute to essential programmes in the North East and beyond.

“We have obtained assurances from CYBG regarding our employees (including a commitment to leverage the best talent from both CYBG and Virgin Money) and our Gosforth headquarters.

“The combined group will remain a committed voice behind the Women in Finance Charter as well as working to reduce the gender pay gap.

“This is a compelling deal for our shareholders, that accelerates value delivery and represents the beginning of the next chapter of the Virgin Money story.”