CYBG makes an all-share offer for Virgin Money.
Investors embracing proposed CYBG takeover of Virgin Money as shares jump 10%
This morning we have had conformation that Virgin Money has received a takeover offer from CYBG, which was itself formed out of the union between two other small banks, Clydesdale and Yorkshire Banks. In an ever evolving landscape of competition and challenges, to some it was inevitable that another challenger bank would be taken over, as we have already seen with Aldermore Bank previously.
Discussions are preliminary at present but we have seen a positive reaction in Virgin Money’s share price this morning, up nearly 10% at one point, while CYBG’s shares have also risen by a few percentage points. Investors at The Share centre have seen this as a good deal and an opportunity to take profits demonstrated by Virgin Money being the top sold company, at the time of writing, since market open.
This is an all paper offer with Virgin Money shareholders receiving 1.1297 new CYBG share for each Virgin Money share. Virgin Money shareholders will end up owning 36.5% of the enlarged group and interested investors may want to note that there are plans to keep the valuable Virgin brand subject to agreements with Richard Branson’s Virgin Group Holdings.
For CYBG, the merits of the takeover are to create a stronger challenger bank to the traditional giants and it will need scale to do this. The two banks have complementary portfolios with Virgin Money having a good mortgage offering and CYBG and with a better deposit and current account base. The two together will be also better able to face other challenges such as managing PPI costs.
At the Share Centre, we have had Virgin Money on our recommended shares to ‘buy’ list. However, after today’s jump we feel there is limited further upside and have therefore reduced our recommendation to a ‘hold’.
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