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NSF walks away from hostile takeover of Provident Financial

Provident’s stock looks “compellingly cheap” now the risk of having to support NSF has passed, Numis analysts said

Provident's shares have fallen by more than 70% over the past two years

Non-Standard Finance (LON:NSF) has walked away from its £1.3bn hostile takeover bid for rival subprime lender Provident Financial PLC (LON:PFG).

NSF said that after discussions with regulatory authorities, it had concluded that conditions for the offer will not be satisfied by the deadline of midnight on Wednesday to either declare the takeover unconditional or let it lapse.

The company, which launched the bid earlier this year, has therefore decided to allow the offer to lapse.

READ: Competition authority expresses concern about Non-Standard Finance takeover of Provident Financial

In morning trading, shares in Provident gained 13% to 504p while NSF fell 2.7% to 45.7p.

The Competition and Markets Authority had launched an inquiry into the deal on May 28 and would have announced whether or not it would refer the takeover for a phase two investigation by July 23.

The watchdog had suggested the deal would significantly lessen competition in this part of the sub-prime debt market and as a remedy NSF might have to de-merge its Loans-at-Home business.

NSF struggles to secure backing from Provident shareholders 

NSF had only managed to secure the support of three key shareholders in both companies including Woodford Investment Management, Invesco and Marathon. In total, investors holding 53.53% of Provident’s stock supported the deal.

Neil Woodford, which owns Woodford Investment Management, has been hit by a recent wave of investor redemptions in one of its key funds amid concerns about performance. That prompted him to suspend trading of the Woodford Equity Income Fund on Monday.

READ: Neil Woodford suspends trading in flagship fund after investor withdrawals

On Tuesday, institutional investor Janus Henderson joined Schroders, M&G and Coltrane in speaking out publicly against the deal.

NSF said as a result of the level of acceptances received, the enlarged company would “not have sufficient regulatory capital on a consolidated basis at completion due to the expected level of minority interests at that point”.

The group expects fees for the abandoned deal to amount to between £10.0mln and £10.5mln, which will be treated as an exceptional item in its 2019 half-year results.

NSF boss 'disappointed' 

"I am very disappointed that despite our best efforts customers, employees and shareholders will not now benefit from our transformation plan to build a brighter future by combining Provident with NSF,” said John Van Kuffeler, NSF’s chief executive and Provident’s former boss.

“NSF will continue to focus on delivering value to its customers, employees and shareholders by providing a helping hand to the 10-12 million UK consumers that are either unable or unwilling to access mainstream credit.

"Each of our businesses has a top three position in its respective market segment and we believe each is capable of delivering attractive long-term returns for NSF shareholders through a combination of capital and dividend growth."

Provident had advised shareholders against backing the deal, arguing that a review of NSF’s historical financial disclosures had uncovered a series of concerns, including a poor capital position and statutory losses since the business was founded.

NSF had said these concerns were “completely unfounded” and insisted that it has a “robust capital position”.

It pointed out that Provident’s board has presided over multiple profit warnings, serious regulatory mismanagement and a lack of vision for the future of the business.

Numis reinstates 'buy' rating on Provident 

Following NSF’s decision to pull its offer, Numis reinstated a ‘buy’ rating on Provident with a target price of 695p.

“The reason for the lapse was said to be the delay driven by the regulator, but we suspect NSF's capital position to be the major consideration,” Numis said.

“We believe Provident will have to take a charge of c.£20m to cover the costs of the deal, but the group retains surplus capital and is being valued at just 6.7x 2020 earnings."

Numis added the Provident’s stock looks “compellingly cheap” now the risk of having to support NSF has passed while recovery is underway and the group remains a “market leader in all business lines”.

Quick facts: Provident Financial

Price: 185.4 GBX

Market: LSE
Market Cap: £470.2 m

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