Schroders, which has a 14.6% stake in Provident, wrote to the company’s chairman Patrick Snowball to say it would not accept NSF’s £1.3bn unsolicited offer as it does not believe it is in the best interest of shareholders.
“PFG has faced a number of issues in recent years, but the Q1 trading statement shows that it is on track with its recovery and rehabilitation,” Schroders said in its letter to Snowball.
“In our view, NSF's bid risks destabilising this recovery, and brings additional regulatory risks and uncertainty.”
NSF, which is headed by Provident’s ex-boss John Van Kuffeler, lodged the takeover bid earlier this year.
Majority shareholders, Woodford, Invesco and Marathon have indicated they would support the deal.
NSF faces regulatory challenges, says Schroders
Schroders said NSF faces “a number of operational and regulatory challenges”, including an FCA investigation of its guarantor lending business.
It added that it does not believe Woodford, Invesco and Marathon “should be seeking to impose the challenges” of NSF on Provident.
“We are concerned that the right of minority shareholders are not being protected, and that this represents poor stewardship.”
Provident says review of NSF financial disclosuers raises concerns
In a separate statement, Provident said a review of NSF’s historical financial disclosures has uncovered a series of concerns.
Among the concerns are that there may be an undercapitalisation of the enlarged group, potentially requiring a capital raise.
The review found “significant headwinds” facing NSF’s business and an overly “positive perspective” on the firm’s headline financial performance despite reporting statutory losses since it was founded.
Provident said NSF shareholders have seen a reduction of equity since the firm’s incorporation through shareholder distributions, many of which NSF has admitted were unlawful.
Another concern raised in the review was that NSF “appears to be overvalued” relative to other UK lenders, particularly given its financial performance.
NSF offer has 'significant flaws'
“The Provident board has serious concerns about the underlying financial and operating performance of NSF and whether the current market capitalisation is a true reflection of the fundamental value of the NSF Group,” Provident said.
“With respect to both capital and profits, the Provident board believes that the conclusions presented here make it even more apparent that NSF's offer, if successful, would benefit NSF by mitigating its own weaknesses with Provident's strengths, resulting in a materially weaker pro-forma combination for Provident Shareholders.”
Provident said it also believes the risks associated with a phase two review by the UK’s Competition and Markets Authority and a possible unwinding of the acquisition are not risks shareholders should take on.
The group concluded that the NSF offer has “significant flaws and would be value destructive” and again urged shareholders to vote against it.