(Reuters) - Virgin Money (L:VM) said on Monday that it had received an all-stock takeover offer from rival CYBG Plc (L:CYBGC), a proposal that values the British lender at about 1.6 billion pounds.
The merger would create Britain's leading 'challenger' bank, with 6 million personal and business customers, said CYBG, the owner of Clydesdale Bank and Yorkshire Bank, in a statement.
Challenger banks emerged in Britain after the financial crisis to fill a gap in small business lending and capitalise on problems at the bigger banks.
CYBG, which made its London market debut in 2016 after it was spun off by National Australia Bank (AX:NAB), said Virgin Money would own about 36.5 percent of the combined company. Virgin Money shareholders would receive 1.13 new CYBG shares for each Virgin Money share.
Virgin Money, founded and partly owned by entrepreneur Richard Branson, said its board was reviewing the proposal.
Virgin Money shares have risen about 10 percent this year and closed at 312 pence on Friday, while CYBG shares were down about 6 percent in the same period and closed at 318 pence. Markets were closed on Monday in London for the May Day holiday.
Based on those prices, CYBG's offer values Virgin Money at around 359 pence per share, or about 1.60 billion pounds, a premium of about 15 percent.
CYBG shares fell last month after the lender said it had increased provisions for repaying customers missold payment protection insurance.
Last week, Virgin Money reported a strong credit performance and better-than-expected deposit growth from savers in the first quarter.