Virgin Money buyer CYBG may need to improve offer after Virgin’s core capital ratio upgraded by Bank of England - analytical report
CYBG [LON:CYBG], a UK-based bank, may need to improve its GBP 1.7bn (EUR 1.92bn) agreed takeover bid for UK-based rival Virgin Money Holdings [LON:VM], according to analysts cited by a Sunday Telegraph report. The newspaper cited Keefe, Bruyett & Woods analysts who thought that shareholders might put pressure on CYBG to improve its all-share offer after the Bank of England upgraded Virgin Money’s core capital ratio by over 250 basis points to about 16% this month.
The upgrade followed a new assessment of the robustness of Virgin Money’s mortgages, the item said. The analysts said the upgrade means that CYBG may need to improve its offer and the upgrade improved the prospects of the acquisition for CYBG.
One of Virgin Money’s ten biggest shareholders said they agreed with the reasoning behind the suggestion that CYBG should improve its offer, the report continued. However, the shareholder added that the update’s timing was “unfortunate,” coming as it did after Virgin Money and CYBG had agreed a deal.
The shareholder added that the strategic merits of the proposed takeover are strong enough to warrant the deal proceeding anyway. The shareholder added that the deal will depend on Virgin Money’s biggest shareholder Virgin Group, which holds a stake of about 33%. Virgin Group has already agreed to the takeover and to the enlarged group using Virgin’s brand, the item added.
CYBG will rebrand its retail banking operations to Virgin Money over a three-year period and will pay Virgin Group owner Richard Branson a GBP 15m per year fee for the brand, the report said.
Virgin Money Holdings’ share price closed 7.7p down at 378.8p in London on Friday, 13 July, giving the company a market capitalisation of GBP 1.68bn.