Owner of Clydesdale and Yorkshire banks (LON: CYBG) has raised its previous offer for Virgin Money (LON: VM) by offering shareholders a bigger stake in the combined group.

Clydesdale and Yorkshire Bank Group (CYBG) is now offering Virgin Money shareholders a 38 percent stake in the group compared with the initial 36.5 percent offer. The offer values Virgin Money at 359p a share.

The proposed deal will create Britain’s sixth-largest bank, with over six million customers. The boards of both groups have said the combined group would lead to significant savings by removing the overlap between the firms.

John Cronin of Goodbody said: “Given the decline in CYBG’s share price in recent weeks, the implied price per Virgin share is now 354p, down from 359p on 7th May.”

“However, stepping back, our view is that this should still represent a highly attractive offer from a Virgin Media shareholder perspective,” he added.

City analysts have warned that CYBG may have to increase the offer further in order to secure the deal after the group posted a pre-tax loss of £95 million in the half year to March.

Ian Smith, CYBG’s chief financial officer, said he was “not concerned” by the bank’s results. “I don’t need to defend this business,” he said.

Richard Branson, the founder of Virgin Money, owns a 35 percent stake in the group and could gain a large profit from the sale. 

The deal has not yet been accepted but the merger will likely lead to a significant threat to the big five – Barclays (LON: BARC), HSBC (LON: HSBA), Lloyds (LON: LLOY), RBS (LON: RBS) and Santander.

“The board of Virgin Money is in the process of reviewing this proposal. There can be no certainty either that an offer will be made nor as to the terms of any offer, if made,” said Virgin Money in a statement.