Duffy becomes CEO, Gadhia is 'adviser'
1,500 jobs axed in Clydesdale-Virgin Money merger
David Duffy: becomes CEO of new bank
Clydesdale Bank owner CYBG and Virgin Money admit 1,500 jobs are expected to be axed after they agreed the terms of a recommended all-share merger.
The banks say they will seek £120 million of annual pre-tax cost synergies in the deal which is also likely to see the bank switch to the Virgin Money brand and the eventual loss of the historic Clydesdale and Yorshire brands.
A spokesman said: “As a result of the significant operational overlap between CYBG and Virgin Money, the combined group will be able to reduce the duplication of roles, leading to a decrease in the total number of full-time employees.”
CYBG currently has 6,500 full-time staff while Virgin Money has 3,200. The total number of workers of the combined group “will reduce by approximately 16%, some of which will take place via natural attrition.”
CYBG chairman Jim Pettigrew, CEO David Duffy, and CFO Ian Smith will retain their current positions in the new bank.
Jayne-Anne Gadhia, CEO of Virgin Money, who has been in her current role for more than 10 years, has agreed – in principle – to support the combined group as a senior adviser to the CEO “in a consultancy role for a period of time beyond completion of the offer, on terms to be agreed.”
The Virgin Money brand will be retained and two of the non-executive directors currently on the Virgin Money board, as well as one non-executive director nominated by Virgin Enterprises will become members of the CYBG board.
The new company will be headquartered in Glasgow. The Gosforth co-headquarters of Virgin Money will be retained, but there is no commitment to the Edinburgh offices in St Andrew Square.
Virgin Money shareholders will receive 1.2125 new CYBG Shares in exchange for each Virgin Money Share.
Based on the closing price of 306p per CYBG share on 15 June the offer values each Virgin Money share at 371p and Virgin Money’s ordinary shares on a fully diluted basis at approximately £1.7bn, representing a premium of:
‒ 19%. to the closing price of 312p per Virgin Money share on 4 May (being the last business day prior to the commencement of the offer period); and
‒ 35% to the volume weighted average price of 276p per Virgin Money share for the three-month period ended 4 May.
· Following completion of the offer, Virgin Money shareholders will own approximately 38% of the combined group (on a fully diluted basis).
Strategic and financial rationale for the offer
The CYBG directors believe the combination of CYBG and Virgin Money will bring together the complementary strengths of two successful challenger banks to create the UK’s first true national competitor to the large incumbent banks.
The CYBG directors believe the Combination has a strong strategic and financial rationale, creating a compelling opportunity for both sets of shareholders.
The Clydesdale Bank brand will be ditched despite being established back in 1838. It survived after being acquired by Midland Bank in 1920 and when it was sold to National Australia Bank in 1989. Yorkshire Bank, the other brand to be dumped, dates back to 1859.
Mr Pettigrew said: “I am delighted we are announcing the combination of the CYBG and Virgin Money businesses. It is clear to us that the combined group can transform the UK banking landscape and offer real benefits to customers and communities throughout the UK.
“Since our IPO in 2016, the CYBG board and leadership team has established CYBG as a strong and sustainable business, with a track record of delivery and the credentials to deliver a transformational combination with Virgin Money.
“Our recommended offer can deliver real value for all shareholders and create a powerful force in UK banking.”
Mr Duffy said: “The combination of CYBG and Virgin Money will create the first true national competitor to the status quo in UK banking, offering 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 are bringing together CYBG’s 175-year heritage in serving retail and SME customers and advanced digital technology, with the iconic Virgin Money brand and consumer champion credentials.
“Together we will serve around six million customers, with the scale, capabilities and financial muscle to disrupt the status quo – and with a clear ambition to provide our customers with the best service in the UK.
“CYBG and Virgin Money have similar values, with strong roots in our regional heartlands and a shared vision for how the combined group can be a leading force in the banking model of the future, whilst maintaining our strong people-focused values. I am hugely positive about what we can achieve together with the talent that is available on both sides.
“The strategic rationale is clear and offers both sets of shareholders real value, material earnings accretion, and enhanced capital generation for the benefit of all shareholders, together with both firms’ customers, colleagues and local communities.”
There is no commitment to retain the Virgin Money offices in Edinburgh (pic: Terry Murden)
Mrs Gadhia said: “When Virgin Money was established in financial services in 1995, we vowed to change the world of banking for good.
“We were the first UK financial services company to offer investment products directly to customers. We transformed the mortgage market and, as a result, saved customers hundreds of millions of pounds by introducing daily mortgage interest calculations.
“In January 2012 we successfully acquired Northern Rock and built a broader business from the solid foundations and wonderful people of the North East of England.
“We aim to offer good value to customers, treat employees well, make a positive contribution to society and create value for shareholders. Since January 2012 we have more than doubled our customer lending and delivered strong and growing profitability. There are now just over 3,200 Virgin Money colleagues serving 3.4 million customers.
“Since our IPO in November 2014, we have delivered against our strategic and financial objectives, demonstrating balanced organic growth while maintaining our responsible approach to lending. The operating environment since our IPO has presented many challenges and we have been delighted by how our colleagues have responded.
“Virgin Money’s customer focus and nimble approach to distribution and pricing, coupled with a prudent focus on cost management and asset quality, have enabled us to drive strong returns for shareholders.
“Our intention has always been to make everyone better off.
“The offer reflects confidence in our strategy, our track record of delivery and the complementary strengths of the two businesses. The combination of Virgin Money with CYBG will have greater scale to challenge the big banks. It will also accelerate the delivery of our strategic objectives, particularly the expansion of the products we offer to customers.
“I am especially pleased that we have received a number of important commitments from CYBG. The Virgin Money Foundation will continue to contribute to essential programmes in the North East and beyond.
“We have obtained assurances from CYBG regarding our employees (including a commitment to leverage the best talent from both CYBG and Virgin Money) and our Gosforth headquarters. The combined group will remain a committed voice behind the Women in Finance Charter as well as working to reduce the gender pay gap.
“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.”
Rob MacGregor, Unite national officer, said: “Thousands of banking employees have this morning heard through the media that their jobs are no longer secure.
“Unite the union represents staff across both banks and has this morning expressed deep unease about jobs and services across both these financial institutions.
“The purchase of Virgin Monday by Clydesdale and Yorkshire Bank will change the face of banking in many high streets across the country. It is vital that the skilled and experienced workforce are given assurances that branches and contact centres will not be closed leaving customers without their much valued access to local banking.
The historic Clydesdale Bank name will disappear
“Unite is now seeking an urgent meeting with the new combined Chief Executive, David Duffy in order to secure assurances about the employment of the dedicated women and men across the county.”
Unite is the only recognised union within both CYBG and Virgin Money.
Russ Mould, investment director at AJ Bell said: “The two companies may have reached an agreement on a recommended all-share business combination, but it is too early to call it a done deal.
“While the target already has the backing of Virgin Money’s largest shareholder, Virgin Holdings with a c.35% stake, other shareholders will still have to approve the transaction.
“There is some strategic logic in putting them together but widely different cultures and the combination of two IT platforms are two major risks which could cause a hiccup or two down the line.”
The Virgin brand will licensed, earning Sir Richard Branson £12 million in the first year, rising to £15m in the fourth year.
On the switch of name, Nick Cooper, of branding consultancy, Landor said: “The Virgin Money brand is perceived as entirely different to other banks and that’s why it’s the right one to take forward. When this deal is complete it will give Virgin Money the scale that it currently lacks and could propel the brand into a position from where it can really challenge the established high street lenders.”