CYBG has reached a takeover deal with Virgin Money that values the bank at £1.7 billion but is likely to lead to more than 1,500 job losses.
The owner of the Clydesdale Bank said the terms of the agreement will see each Virgin Money share exchanged for 1.2125 shares in the new combined group.
The deal values each Virgin Money share at around 371p and the entire group at £1.7 billion.
CYBG’s David Duffy will stay on as chief executive, leaving Virgin Money boss Jayne-Anne Gadhia to serve in a consultancy role as his senior adviser.
The group - which will have its headquarters in Glasgow - will see CYBG’s Jim Pettigrew continue on as chairman alongside finance chief Ian Smith.
The firms said they recognise “that there will be a loss of jobs” as a result of the takeover, likely to number around 1,500.
The bulk of the cuts will affect senior management positions, as CYBG has said there is “very little in overlap” in customer-facing roles
“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 FTEs (full-time equivalent employees).
“It is currently expected that the total number of FTEs of the combined group, being approximately 9,500 FTEs, will reduce by approximately 16%, some of which will take place via natural attrition.”
Ms Gadhia said she had “obtained assurances from CYBG regarding our employees” as well as its Gosforth headquarters but did not provide further details.
“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.”
The Virgin Money boss added: “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.”
The prospect of bank branch closures was played down by CYBG’s finance chief Mr Smith, who said it was “early days” for any estimates.
However, he said it was “pretty clear” that Virgin Money’s branch network “fills up some spaces that we don’t have at the moment”.
“So that’s one of the exciting things about this proposition, and we do believe that branches have an important role to play in our omnichannel model,” he added.
The banks said that the deal would effectively bring the combined group out of the challenger market, making it a real competitor to leading lenders.
CYBG shares were trading higher at around 0.6% in early trading, while Virgin Money shares were up as much as 2.4%.
Sir Richard Branson, meanwhile, is expected to rake in royalties for CYBG’s use of the Virgin brand - at a minimum fee of £15 million annually after the first four years that the combined group is operating.
CYBG said it will work “collaboratively” with Virgin Enterprises in regards to the rebranding of CYBG’s businesses as well as to the ongoing use of the Virgin Money brand.