CYBG shares rise as bank sweetens offer for Virgin Money
The deal would give 1.2125 new CYBG shares for each Virgin Money share.
CYBG shares jumped on Monday after the bank sweetened its offer for Virgin Money.
A joint announcement by the two firms confirmed they were in talks over the proposed all-share deal, which would give 1.2125 new CYBG shares for each Virgin Money share.
While it marks an improvement on the previous share exchange ratio of 1.1297, the recent decline in CYBG’s share price means that it effectively values each stock at 354p versus the stronger value of 359p in early May.
The potential deal still values Virgin Money at around £1.6 billion.
CYBG – owner of the Clydesdale Bank, Yorkshire Bank and B brands – added that the revised proposal means Virgin Money shareholders would hold around 38% of the combined group, compared to 36.5% in the previous offer.
The news sent CYBG shares up as much as 3% in morning trading, making it one of the best performers on the FTSE 250.
Virgin Money shares rose as much as 0.3%.
The boards of both CYBG and Virgin Money said they believe the proposed deal would create the UK’s “first true national banking competitor”, offering a sound alternative to both SME and personal banking customers.
The sweetened deal came in hours before a deadline on Monday that required CYBG to table a firm offer, but Virgin Money has now extended that deadline to June 18 to allow talks and due diligence processes to continue.
Ian Gordon, a banks analyst at Investec, said the revised offer “hardly appears over-generous” and that the valuation of around £1.6 billion is “low”.
“Our view remains that the strategic rationale for the proposed combination is sound, and that cost synergies should (conservatively) amount to 10-20%.
“However, we believe that the current terms are unduly weighted towards CYBG shareholders, and fail to reflect full value for Virgin,” Mr Gordon added.
“We believe that a further improvement to terms may be required to get the deal over the line.”
However, equity analysts at Jefferies believe a successful deal “is more than probable now” noting that the new offer was revealed in a joint announcement, with both lenders “championing its strategic rationale and upfront premium”.
That is also “coupled with the fact that no other bidder has entered the process in the last fours weeks”, analysts added.