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Provident Financial rival makes hostile approach

The sub-prime lender's former chief executive, now in charge of Non-Standard Finance, is bidding for an all-share tie-up
February 22, 2019

Provident Financial (PFG) has received a hostile all-share bid from smaller rival Non-Standard Finance (NSF), which has gained the backing of shareholders representing 50 per cent of the target’s share capital.

Under the terms of the deal Provident shareholders would receive 8.88 new Non-Standard Finance shares for each Provident share. Based on NSF’s 58p undisturbed share price, that values Provident’s shares at 511p. Woodford Investment Management, Marathon and Invesco, which are top 20 shareholders in both groups, have pledged their support for the tie-up.

NSF – founded by John Van Kuffeler, who served as Provident’s chief for 22 years until 2013 – emphasised its experience in the sub-prime lending sector and said it would seek to address “the Provident board's limited operational experience in the non-standard finance sector and the significant turnover in senior management at Provident board, group and divisional levels”.

The board of Provident Financial “strongly advised” shareholders to take no action and said a further announcement would be made in due course.

NSF plans to address its target’s central cost base and bring down the cost-income ratio of the home credit business. A botched reorganisation of that business – which involved switching from self-employed to employed agents – caused a severe reduction in collections rates and forced the consumer credit division into a pre-tax loss in 2017. Meanwhile Vanquis Bank last year agreed to pay £172m over its sale of repayment option plans (ROP), where it failed to adequately disclose interest charges, following a settlement with the Financial Conduct Authority.  

The cost of that settlement, combined with restructuring charges associated with the home credit division, forced the lender to launch an emergency rights issue to bolster its capital levels above the regulatory minimum.

Peel Hunt’s Anthony Da Costa – who described news of the deal as “surprising” – is sceptical that stripping out costs will remedy problems at Provident’s home credit business. "The issue isn't cost-to-income, it's income", he says. "Provident has been investing in people to solve the issue of bringing back the revenue". Cutting costs could therefore reduce collections, he adds.

The enlarged group would focus on home credit, branch-based and guarantor lending, credit card specialist Vanquis Bank and sell “non-core” motor finance provider Moneybarn and online lender Satsuma. It would also involve spinning-out NSF’s existing home credit business, Loans at Home, to assist with gaining approval from competition regulators.   

Yet UK economic uncertainty and the ongoing FCA investigation into Moneybarn’s forbearance and termination options means trade buyers might be reluctant to bid much for the business, says Mr Da Costa. “I would be surprised if you got a very good price for that business,” he says.