Provident Financial gets £1.3bn takeover offer from Non-Standard Finance

Sub-prime lender Provident Financial has received a £1.3bn takeover offer from smaller rival Non-Standard Finance.

Under the terms of the deal, Provident shareholders would receive 8.88 new NSF shares for each of their shares. Based on NSF’s closing share price of 58p a share on Thursday, this values each Provident share at 511p.

The transaction will result in Provident shareholders owning around 87.8% of the enlarged NSF Group.

NSF said the deal is expected to create a "well-balanced" group with leading positions in some of the most attractive segments of the non-standard finance sector. It also said the transaction will "revitalise" Provident's prospects and unlock substantial value for Provident and NSF shareholders while benefiting customers and employees.

Cost savings, revenue synergies and lower funding costs are also expected, as well as the potential for capital returns over time from disposals and capital efficiency.

NSF founder and chief executive John van Kuffeler said: "This transaction will create a market leader in the non-standard finance sector with a strong position in all four main segments. We have recognised the strong logic and value creation potential of a combination with Provident for some time and hence approached the Provident board with a proposal in January last year. That approach was rebuffed and since then Provident has further lost its way.

"However, NSF has extensive management expertise and experience, and the correct strategy to turn Provident around and release significant value by combining it with our own fast-growing businesses for the benefit of customers, employees and investors. I'm delighted that holders of over 50% of Provident's shares have given their support to our proposal today."

The transaction is backed by Woodford Investment Management, Invesco and Marathon, which together hold over 50% of Provident’s shares.

Provident said in a statement that the board's "considered" response to the offer will be announced in due course.

"In the meantime, shareholders are strongly advised to take no action in respect of the NSF offer," it said.

At 1045 GMT, the shares were up 4.4% to 533.80p.

Numis said: "A combination of no premium and the poor track record of delivering value (NSF came to market at 100p and is currently valued at 58p) and the poor operational performance within their own home credit business leads us to question why Provident shareholders would accept the offer.

"NSF plan to simplify the business portfolio through the sale of Moneybarn, the demerger and the sale or closure of Satsuma. With the FCA investigation of Moneybarn being ongoing we believe selling the business today, especially given the current point in the economic cycle, will not create value for shareholders."

Peel Hunt said: "Provident shareholders will not be getting bid premium and the offer values Provident shares at 10.1x 2019E earnings or 1.8x NAV. For Provident shareholders, in the event that the deal completes, our concern is on the execution risk around extracting value given a period of economic uncertainty that could impact the unsecured lending space as well as potentially depress the sell value of ‘non-core’ assets."