CYBG said buying its FTSE 250 rival would create “the UK’s first true national competitor to the large incumbent banks” – Lloyds, Barclays, Royal Bank of Scotland, HSBC and Santander – combining its own business banking and innovative technology with the “iconic” Virgin Money national brand.
Investors in Virgin Money, which bought Northern Rock in 2012, will receive 1.2125 new CYBG shares for each existing share and own 38 per cent of the combined group, which will rebrand under the Virgin Money banner.
CYBG chief executive David Duffy will retain that role, with Virgin Money counterpart Jayne-Anne Gadhia taking on a consultancy role as a senior adviser.
It has agreed with Sir Richard Branson’s Virgin Group, Virgin Money’s biggest shareholder with a 34.8 per cent stake, to license the Virgin Money brand initially for £12million a year, later rising to £15million.
The merged group will have about 250 branches serving six million customers.
Headquartered in Glasgow, it will continue to operate from Virgin Money’s Gosforth office for at least three years.
About 16 per cent of its 9,500 jobs will go, with management and back office functions in the firing line as it looks to preserve customer-facing roles.
Duffy said: “This will offer 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 will have the scale and financial muscle to disrupt the status quo, and with a clear ambition to provide our customers with the best service in the UK.”
Gadhia said: “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.”
Annual cost savings of about £120million a year are anticipated, with one-off costs of £240million.