CYBG PLC is expected to use the Virgin brand name for its digital banking operation, currently called "B," should its bid to acquire Virgin Money Holdings (UK) PLC go ahead.
CYBG confirmed it had approached Virgin Money with a proposed all-share offer May 7 and sweetened its proposal June 3 in a deal which valued the target at £1.6 billion.
It said it had improved its proposal to 1.2125 CYBG shares for each one held in Virgin Money, up from 1.1297 shares. Under the revised terms, Virgin Money would own 38% of the combined group rather than 36.5%. Under U.K. takeover rules CYBG has until June 18 to announce a firm intention to make an offer for the bank.
A source close to CYBG has said its intention is to use the Virgin name instead of its existing brand "B" for its digital banking operations. Its online arm was launched two years ago and has about 175,000 customers, along with Studio B, a showcase branch which the bank describes as a "creative and interactive space" on London's Kensington High Street.
The source's comments are the first indication, since its approach to Virgin, of CYBG's plans for the two brands.
"CYBG has spent £350 million on a tech overhaul which will have low integration risk [with Virgin Money] and creates a fantastic digital platform," said the source, who is familiar with CYBG's plans. "'B' is not very well known at the moment; it would cost a fortune to advertise sufficiently to create proper brand awareness. But if you called it 'Virgin' and rolled the brand out across the country, that could be great."
The source noted that Virgin Money has a very limited current account product and virtually no small and medium-sized enterprise customers, but it does have 2 million mortgage accounts.
The combined entity would probably look to offer online current accounts under the Virgin brand, the source said.
CYBG and Virgin Enterprises Ltd have issued a joint statement that "separate discussions and due diligence" are ongoing between the pair about the license of the Virgin Money brand for the merged business.
In 2017, Virgin Money paid Virgin Group £8 million, or just over 1% of its revenue, for the rights to use the Virgin name, while the group also received £8.4 million in dividend payments.
Virgin license fee
CYBG said it was not able to provide further guidance on its plans for Virgin Money, but its original announcement in May regarding its proposal for Virgin Money noted that the Virgin Money brand "would play a significant role in the combined group."
Richard Branson's Virgin Group owns 35% of Virgin Money and would own 13% of a combined CYBG/Virgin Money group, which would have more than 6 million customers, 3.34 million of them at Virgin and 2.8 million at CYBG.
The Virgin Group is expected to agree on a deal with CYBG over the use of the Virgin brand at a similar ratio to the present deal with Virgin Money — that is, 1% of turnover — according to the Sunday Times. The Virgin Group could get £17 million from a deal with the enlarged banking group, the newspaper reported June 10.
Clydesdale Bank has 70 branches in Scotland while Yorkshire Bank has more than 90 branches plus 22 banking centers in the North and Midlands of England and offers a full range of bank services. CYBG debuted on the London Stock Exchange in 2016 after being spun off by National Australia Bank.
Virgin Money, based in Newcastle, has 74 branches and five so-called "lounges," and specializes in credit cards and mortgages. It acquired the branches and many of the customers of Northern Rock in 2012, following the latter's government bailout during the financial crisis.
The boards of CYBG and Virgin Money have indicated their support for a merger, stating that the combination of the two banks would "create the U.K.'s first true national banking competitor."
John Cronin, analyst at Goodbody Stockbrokers, said: "The Virgin brand is likely to be a key attraction for CYBG, it would make eminent sense to apply the Virgin brand outside of CYBG's core regions and, in the context of wider franchise expansion, digital bank development, not to mention the fact that the brand would have power in the context of any international expansion ambitions if there are conversations happening with the likes of Big Tech, etc."
Virgin Money's share price has risen 1.01% since May 8 to reach 348.5 pence per share in midmorning trading June 11. CYBG's share price has fallen 9.7% to 298.6 pence per share over the same period.