UK bank CYBG (which is substantially Australian owned and listed on the ASX and the London Exchange) looks like it will have to lift its takeover offer for rival bank Virgin Money after a slump in its stock slashed the value of its all-share proposal.
CYBG was spun out of the National Australia Bank a couple of years ago and is still substantially owned by Australian shareholders of the NAB who took shares in the sin off.
CYBG, which controls the Clydesdale and Yorkshire banks in the UK bid for Virgin Money earlier this month in a paper deal worth £1.62 billion.
Since then shares in CYBG have fallen almost 8% since the offer was announced, knocking more than £120 million from the value of the stock it proposed to exchange.
Shares in Virgin, meanwhile, have made risen after the initial spike on the news of the approach and now trade above the offer price.
UK analysts expect that CYBG will reveal an improved offer with probably a cash component (which will help anchor the offer price.
Even though there is an absence of rival bidders, the feeling is CYB will have to sweeten its bid to win the day. The deal will have the impact of watering down the Australian stake in the company with Virgin shareholders expected to own 36% of the merged group on the basis of an all share bid.
Under the UK Takeover Code, CYBG has until June 4 (a week last Monday to announce a firm intention to make an offer for Virgin, or it will not be allowed to make a bid for another six months.