CYBG, Virgin Money strike $2 bn deal to create Britain's sixth biggest bank

Richard Branson owns around 35% of Virgin Money

Mid-sized bank CYBG has agreed to a 1.7 billion pound ($2.26 billion) all-share deal to acquire Virgin Money, which it said will create Britain's sixth-largest bank and a new challenger to the country's top four lenders.

The deal, on the same terms as CYBG's sweetened bid in June, will see Virgin Money shareholders receive 1.2125 CYBG shares per Virgin Money share and own approximately 38 per cent of the combined group.

It will create Britain's sixth-largest bank by assets, around twice the size of its largest rival and with the firepower of the Virgin brand, which the combined group will pay a royalty to keep. Richard Branson owns around 35 per cent of Virgin Money.

CYBG CEO David Duffy, who will lead the combined group with Virgin Money CEO Jayne-Anne Ghadia acting as a senior advisor for an unspecified period of time, said the deal will create a lender with the capabilities needed to take on large incumbents.

"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," he said in a statement.

Still, its size will pale in comparison to the likes of Lloyds Banking Group and the Royal Bank of Scotland, meaning the new bank will have a steep hill to climb to take on Britain's big four, which dominate the sector.

CYBG will pay a fixed royalty to keep the Virgin Money brand, which starts at 12 million pounds in the first year and increases to 15 million pounds in the fourth year.

An additional royalty will kick in in the fifth year, or the fourth year if CYBG's turnover reaches a threshold amount.

Like Duffy, CYBG's chairman, Jim Pettigrew and its finance director Ian Smith will all retain their roles in the combined group.

($1 = 0.7537 pounds)