In a move designed to create a “market leader in non-standard finance,” sub-prime lender Non-Standard Finance (NSF) has made a takeover bid for Provident Financial. What’s surprising about the step is that NSF is the smaller of the two rival enterprises and its ambitious, strategic move has not gone unnoticed. Provident Financial is not currently in great shape, as it is experiencing the fallout from an attempt to restructure a century-old business model with more technology and fewer staff. The larger lender has so far refused the offer from NSF, calling it “strategically and financially flawed” but that may not be the end of the story. Provident Financial’s problems began in mid 2017 and that year it declared a loss of nearly £150m. It’s share price collapsed on the back of the failed reorganisation and its share price has not yet recovered.

Who are the rival lenders?

Non-Standard Finance. Established in 2015 and now the third biggest home credit lender. NSF offers home credit (“Loans at Home“), bad credit personal loans (“Everyday Loans“) and guarantor loans (“George Banco and “Trust Two“). Expansion in the years since the business was established has seen it go from strength to strength. The current top man at NSF is John van Kuffeler who was formerly chief executive and chairman of Provident Financial.

Non Standard Finance logo

Provident Financial. A well-established lender (created in 1880) with more than 800,000 borrowers committed to doorstep loans repayments. The business also includes Vanquis Bank, which offers a credit card with a 69.9% interest rate. The larger lender has been struggling as a result of a number of key factors, including a difficult recent restructure and regulatory sanctions. The business’ Moneybarn arm, which handles car finance, is currently being investigated by the FCA. The regulator is looking at the way it treats borrowers who miss repayments. Vanquis has already been ordered to pay £168.8m in compensation and a £2m fine as a result of a previous investigation into failure to disclose certain charges. Provident Financial logo

The takeover bid

The bid made by NSF has been backed by shareholders with more than 50% of Provident Financial’s shares. It’s not the first time that a takeover has been launched, as NSF made a previous attempt in 2018. Then, too, Provident Financial rejected the offer but conditions have not significantly improved for the business since then. It’s as a result of this further perceived slide in performance that representatives of NSF have said they feel the rival lender has “lost its way,” justifying a fresh takeover bid in 2019.

Under the terms of the takeover bid, Provident Financial shareholders would receive 8.88 new NSF shares for each Provident share. The offer has been rejected by Provident Financial management, which has made clear that it doesn’t believe this represents a true value of the company. Although it has suffered a 76% drop in share value in less than two years, those in charge at Provident Financial still sees to believe that the deal isn’t a fair reflection of the business. In fact, the offer made by NSF was described by representatives of Provident Financial as “irresponsible” particularly as the business has recently been destabilised by its financial restructuring. They said a takeover could put at risk the progress that the company has made towards sorting out the myriad of issues that have overwhelmed it in recent times.

Also problematic to the target company is a proposal in the takeover bid to dispose of Moneybarn and sell off another arm of Provident Financial – its online Satsuma business. Provident chairman Patrick Snowball said, “this Offer does not reflect that times have changed and ignores the significant progress we have made with our customers, staff and regulators over the past 12 months.” However, this perspective was dismissed by John van Kuffeler who has made it clear he feels that the issues Provident currently has are not reversible other than by this kind of drastic action.

What’s the situation now?

Currently, the takeover bid is being publicly rejected, not just on the basis of the value offered, but also with respect to suggested takeover strategy. Investors still have to vote on whether to approve the deal but given that just over 50% of the shares are owned by three big investors  – Invesco, Marathon and Neil Woodford – there is already significant backing in place.

For consumers, the real question is whether a “market leader in non-standard finance” would be beneficial or whether this would create fewer opportunities for broader access to credit. Unless – or until – the proposed takeover happens there will be little certainty on what the doorstep loans market in the UK is going to look like in the near future.

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