CLYDESDALE Bank owner CYBG’s bid for Williams & Glyn could be a good move for the Glasgow-based lender which may be able to buy the operation at a ‘fire sale’ price a leading analyst has said.
CYBG confirmed on Tuesday it had made a non-binding proposal to acquire Williams & Glyn from Royal Bank of Scotland.
Justin Urquhart Stewart of Seven Investment Management noted the takeover would allow CYBG to acquire a business with a strong brand and a significant branch network from Royal Bank, which may not be in a strong bargaining position.
With CYBG commanding a stock market capitalisation of around £2.4 billion buying Williams & Glyn at the £1.3bn valuation some have placed on the business would be a challenging proposition.
However, Mr Urquhart Stewart noted: “Royal Bank is almost in a position where it’s in a fire sale. Unless it can do a deal soon the EU could force it to do something.”
Edinburgh-based Royal Bank has to offload Williams & Glyn by the end of 2017 to satisfy conditions imposed by European Union competition authorities following the £45 billion bailout of the group during the financial crisis that started in 2008.
Mr Urquhart Stewart added: “I think Clydesdale can bid low on this one. It could pick up assets at a pretty good valuation… It’s potentially a very good move.”
He reckons CYBG could probably raise fairly low cost debt to support the acquisition of Williams & Glyn, so would have no need to issue shares to fund the deal.
Shares in CYBG closed down 0.7p at 271.4p yesterday.
Led by chief executive David Duffy, CYBG wants to position itself as the leader of the pack of so-called challenger banks that aim to win market share from giants such as Royal Bank and Lloyds Banking Group, which owns bank of Scotland.
Royal Bank has spent around seven years trying to find a solution to the challenge posed by the EU. Talks with Santander are thought to have foundered amid the Spanish bank’s concern about the difficulties involved in separating Williams & Glyn from Royal Bank and disagreements on pricing.
Laith Khalaf, analyst at the Hargreaves Lansdown investment business, said Williams & Glyn was a major millstone around Royal Bank's neck.
A Royal Bank spokesperson said it had no comment to make on the analysts’ remarks. On Tuesday the bank said it was exploring options for meeting its obligations to the European Commission and there remained interest in Williams & Glyn.
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