Challenger banks Virgin Money and CYBG in £1.6bn merger talks

Deal would see Virgin Money own 36.5 per cent of new combined banking group

Virgin Money has been approached by rival CYBG (Reuters)

Virgin Money and Clydesdale Bank-owner CYBG have confirmed they are in talks about a potential merger, which would see the challengers combining to provide a full-service bank for 6 million personal and business customers.

In a statement to the London Stock Exchange, Virgin Money said it had received a “preliminary and conditional proposal” from CYBG to buy the entire issued and to be issued share capital of Virgin Money.

CYBG, which also owns Yorkshire Bank, has offered to pay 1.1297 new CYBG shares for each Virgin Money share, in a deal that values Virgin Money at approximately £1.6bn.

According to the terms set out by CYBG on Monday, Virgin Money would own around 36.5 per cent of the combined group if the deal goes ahead.

CYBG said its proposal “provides the Virgin Money shareholders with an attractive up-front premium and the opportunity to participate in the continuing progress of the combined group”.

“CYBG recognises the strength and appeal of the Virgin Money brand. Our proposal would ensure that the Virgin Money brand would play a significant role in the combined group, subject to reaching agreement with Virgin Group,” the bank said.

CYBG added that it believes “the combination would create the UK’s leading challenger bank offering both personal and SME customers a genuine alternative to the large incumbent banks”.

“There can be no certainty either that an offer will be made nor as to the terms of any offer, if made. Accordingly, shareholders are advised to take no action in relation to this proposal,” Virgin Money said.

Shares in Virgin Money were jumped almost 10 per cent in early trading, while CYBG’s stock rose more than 1.7 per cent.

According to UK takeover rules, CYBG now has until 5pm on 4 June to make a firm offer or withdraw its proposal.