Branson's Virgin Money sale for £1.7bn creates challenger to big UK banks

The purchase of the British billionaire-backed bank gives consumer and business lender CYBG greater scale and access to the firm’s presence on the high street

Purchase of Sir Richard Branson-backed Virgin Money will create sixth-largest lender in the UK. Andrew Harrer/Bloomberg

CYBG agreed to buy Virgin Money Holdings UK for about £1.7 billion (Dh8.25bn) in an all-stock transaction, creating a bank with about six million customers to challenge Britain’s largest lenders.

The purchase of the Sir Richard Branson-backed bank gives consumer and business lender CYBG greater scale, potential cost savings and access to the firm’s presence on the high street. The deal adds to a number of transactions among a handful of smaller banks in the UK as they seek to raise funds and steal business from the nation’s top lenders. The combined company will have around £80bn of assets, according to a statement Monday.

Virgin Money’s shares rose 2.4 per cent to 363.4 pence as of 8:08am in London. Through Friday’s close, the stock had gained about 14 per cent since CYBG, formerly the British division of National Australia Bank, initially made an offer in May. It slightly sweetened its all-stock proposal earlier this month by offering VirginMoney shareholders more of the merged company.

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“Combining these two businesses has much strategic logic, in our view, with CYBG bringing strengths in SME banking and current accounts, complementing VirginMoney’s well-recognised brand and strength in credit cards,” Gary Greenwood, an analyst at Shore Capital, said in a note to investors.

Virgin Money shareholders would receive 1.2125 new CYBG shares under the offer. Owners of the Branson company will own about 38 per cent of the combined group. The tie-up is expected to generate £120 million of annual pre-tax cost synergies by the end of the financial year ending September 2021, the statement said.

CYBG chairman Jim Pettigrew, chief executive David Duffy and CFO Ian Smith will retain their current positions in the new group, according to the statement. Jayne-Anne Gadhia, CEO of Virgin Money, will stay on as an adviser for an unspecified time.

“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,” Mr Duffy said. “The strategic rationale is clear and offers both sets of shareholders real value, material earnings accretion and enhanced capital generation.”