NAB spin-off CYBG seeks merger with Richard Branson-founded Virgin Money

NAB spin-off Clydesdale has lobbed a bid for Virgin Money as it seeks to establish the UK’s “leading challenger bank”.

A customer uses a Yorkshire Bank ATM in London. (Matthew Lloyd/Bloomberg)

NAB cast-off Clydesdale has offered to buy Richard Branson-founded Virgin Money in a bid to build the UK’s “leading challenger bank”.

Clydesdale, which NAB spun off together with Yorkshire Bank in 2016 amid scandals involving pension mis-selling and allegations of predatory lending, said it had made a “preliminary approach” to Virgin Money.

The all-scrip bid values Virgin Money at about £1.6bn — a premium of about £210m to its current market value.

If successful, it would result in Virgin Money shareholders owning about 36.5 per cent of CYBG, the holding company that encompasses Clydesdale Bank and Yorkshire Bank and which is listed on both the Australian (CYB) and London exchanges.

It is believed Clydesdale’s board has been pondering making a bid for Virgin Money for the past fortnight.

Clydesdale said the proposal “provides the Virgin Money shareholders with an attractive upfront premium and the opportunity to participate in the continuing progress of the combined group”.

Virgin Money told the London Stock Exchange, where it is listed, that its board was “in the process of reviewing this proposal”.

It is not clear whether the merged entity would retain its Australian listing, with about 60 per cent of Clydesdale’s existing register is believed to be based here.

CYBG hopes that Virgin Money shareholders will be willing to accept its scrip because many of them, including big fund managers Blackrock, Schroders, Vanguard and Dimension are already top 20 presences on both registers.

Success is likely to depend on the attitude of Virgin Money’s biggest shareholder, Richard Branson, who controls almost 35 per cent of the company through his British Virgin Islands-registered vehicle Virgin Group Holdings.

Sir Richard and a consortium including US financial Wilbur Ross — who is now Secretary of Commerce to President Donald Trump — bought the business as Northern Rock in 2011 for £900m.

This followed a £1.4bn government bailout of Northern Rock, which had been brought to the brink of collapse when the global financial crisis exposed risky practices including relying on short-term wholesale credit rather than customer deposits to fund its loans.

Mr Ross tipped in £260m in cash towards the purchase while Mr Branson and Abu Dhabi’s Stanhope Investments each contributed £50m, The Financial Times reported at the time.

Re-named Virgin Money, the company was refloated on the London exchange in 2014.

Under UK takeovers laws, Clydesdale must either make a formal bid or call the deal off by June 4.

It is to report its half-year results next Tuesday.