More than 1,500 jobs, mainly senior management posts, are to be axed in the £1.7bn takeover of Virgin Money by the owner of Clydesdale and Yorkshire banks.
Clydesdale and Yorkshire Bank Group (CYBG) and Virgin Money have agreed to create the UK’s sixth-largest bank, with 6 million personal and small business customers and total lending of £70bn.
The banks expect to make £120m of annual savings by by 2021 by reducing overlap between their operations. This will result in a 16% reduction in the combined group’s 9,500-strong workforce that CYBG hopes to achieve by attrition – that is, when people leave they will not be replaced. It declined to say how many of the combined group’s 250 branches will be closed.
However, the plan is to retain Virgin Money’s head office in Gosforth, Newcastle, for at least three years. Its chief executive, Jayne-Anne Gadhia, who has led the bank for more than 10 years, will become a senior adviser to the CYBG boss David Duffy, who will take the reins of the combined company.
Duffy said: “It’s a pretty historic day for CYBG and Virgin Money.” He added that the combined company would offer the full scale of products and services, combining Virgin Money’s strength in mortgages, credit cards and investments with CYBG’s small and mid-sized business banking business.
CYBG is paying 1.2125 new shares in exchange for each Virgin Money share. Based on Friday’s closing price of 306p, this values each Virgin Money share at 371p.
Virgin Money was founded in 1995 by Sir Richard Branson, who owns a 35% stake and will make a large profit on the sale – seven years after he led a controversial £747m buyout of Northern Rock after its rescue by the taxpayer.
CYBG will quickly adopt the Virgin Money brand for personal banking, before testing it with small and medium-sized business customers. The rebranding will cost £60m; CYBG has agreed to license the Virgin Money brand for £12m a year initially, going up to £15m in the fourth year.
The deal brings together the UK’s two largest challenger banks, creating the first true national competitor to the big five.
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.”
CYBG clinched the deal after offering Virgin Money shareholders a larger stake in the combined group, of 38%.
After the recent fiasco at TSB caused by a botched IT migration, CYBG stressed that there would be no “big bang” move of Virgin Money customers to its platform on day one. The transfer will be phased over three years.