UK subprime M&A party closed to gatecrashers

By Aimee Donnellan

(The author is a Breakingviews columnist.)

LONDON, April 12 ( Breakingviews) - Britain's subprime M&A party is closed to gatecrashers, yet nobody seems to have told investors in Provident Financial . Shares in the UK lender are trading more than 10 percent above much smaller rival Non-Standard Finance's hostile 1.2 billion pound bid. Given that over 50 percent of Provident shareholders have accepted the deal on the table, any white knight has probably left it too late.

That optimism is evident in market prices. NSF is offering 8.88 of its shares for each Provident share, valuing the target at 467 pence per share based on Thursday's closing price. Yet Provident shares closed at 522 pence. That's unusual: target companies typically trade at a discount to hostile offers.

Although van Kuffeler has the support he needs to claim victory, he is aiming to get shareholders representing 90 percent of the company onside. The remaining Provident investors could hold out and demand an even bigger chunk of the combined group than the 88 percent they are set to receive. However, if NSF hands over more of its shares to Provident, its own share price would probably suffer, cancelling out the benefit of any sweetener.

Regulators could still scupper the deal. Britain's competition watchdog could block it if NSF is unable to demerge part of the combined business. Meanwhile, the Financial Conduct Authority has raised the alarm about NSF's plan to reintroduce incentives for Provident's agents.

Assuming NSF can overcome these hurdles, it remains in a strong position to declare victory. The all-share takeover is effectively a way to replace Provident's management team. If van Kuffeler does not deliver, shareholders will always have the option of selling out to another bidder later. For now, however, that door looks closed.

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- Non-Standard Finance (NSF) said on April 2 it had the backing of the holders of just over 50 percent of shares in Provident Financial for its 1.2 billion pound bid.

- The bid has the support of fund managers Woodford Asset Management, Invesco and Marathon Asset Management, who together hold 49 percent of Provident. The three also own more than 50 percent of NSF.

- Provident has rejected the offer as not in the interest of remaining shareholders.

- NSF has offered 8.88 of its shares for each Provident Financial share. NSF shares closed at 52.6 pence on April 12, while Provident Financial shares closed at 522 pence.

Non-Standard Financestatement

Provident Financial statement

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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