8th May 2019 09:45
LONDON (Alliance News) - Provident Financial PLC and Non-Standard Finance PLC's war of words rumbled on Wednesday, with Provident shareholder Schroders PLC announcing it will not accept Non-Standard Finance's takeover bid for the larger rival.
FTSE 100-listed asset manager Schroders currently holds a 15% interest in Provident and said the offer is "not in the best interest" of Provident shareholders.
The rival home credit lenders have been trading insults since Non-Standard Finance launched a GB1.3 billion hostile takeover for Provident in early March.
However, now Schroders has stepped in and said it believes the minority shareholders of Provident "are not being protected".
The majority of Provident shareholders have accepted the offer but, as Provident has previously noted and Schroders is now stressing, these Provident shareholders also collectively make up the majority of Non-Standard Finance shareholders, holding shares in both companies.
Non-Standard Finance has received valid acceptances from 128.5 million Provident shares, equivalent to 51% of Provident's issued capital. However, it would need acceptances from 90% of shareholders for a successful takeover.
"We do not believe the shareholders of Provident who are also collectively majority shareholders in Non-Standard Finance - namely Woodford, Invesco and Marathon - should be seeking to impose the challenges of the latter company on the former," said Schroders, which has no holding in Non-Standard Finance.
Schroders believes Provident's first-quarter update, published Friday, shows the home credit lender is "on track with its recovery and rehabilitation".
The asset manager said: "In our view, Non-Standard Finance's bid risks destabilising this recovery, and brings additional regulatory risks and uncertainty. By issuing a deadline for acceptances that falls before the outcome of the UK Competition & Markets Authority investigation is known, Non-Standard Finance forces Provident shareholders to underwrite any costs of redress blindly. It also risks creating a crisis of governance if the CMA investigation takes time to conclude."
Schroders stressed it believes Provident shareholders would be best served by the existing management continuing its recovery plan.
Separately, Provident said it has conducted a detailed review of Non-Standard Finance's historical financial disclosures, and claimed to have "uncovered several areas of concern".
Firstly, Provident thinks any potential enlarged company would be undercapitalised - with Non-Standard Finance requiring a capital raise.
"When combined with transaction costs, potential add-ons for operational and governance risk and integration costs, the pro-forma capital shortfall could be expected to completely absorb Provident's current capital headroom and potentially create a further deficit," Provident added.
As a result, the enlarged group would need to raise capital to meet capital requirements.
Provident also believes there is "significant headwinds" facing Non-Standard Finance, based on its own financial reporting on gearing and provisioning. "Non-Standard Finance's gearing ratio has risen dramatically, and disproportionately versus its peers in recent years, potentially reducing its financial flexibility. Provident shareholders could justifiably be concerned about NSF's ability to raise funding and about the cost of such new funding," Provident said.
Provident noted an "overly positive perspective" from Non-Standard Finance in its financial reporting, "despite reporting statutory losses since incorporation". According to Provident, Non-Standard Finance has focused on a "positive presentation" of its results, by excluding adjustments.
Provident said: "These adjustments include fair value adjustments to the loan book and amortisation of intangibles, as well as omitting the interest expense of funding its loan book, which the Provident board believes distorts Non-Standard Finance's historical profitability disclosures."
Provident reiterated what it called the "unlawful" dividend payments made by Non-Standard Finance, resulting in a reduction of shareholder equity, "Non-Standard Finance has focused on its capacity to pay dividends and effect share buy-backs, but the reality is that these have been paid out of funds raised from shareholders or increasing indebtedness, not from post-tax earnings generation."
Provident added that it believes Non-Standard Finance "appears to be overvalued" relative to other UK lenders. Given its review into Non-Standard Finance's financial reporting, Provident "questions Non-Standard Finance's market valuation".
Finally, echoing Schroders, Provident "strongly believes" the risks associated with a Phase 2 review by the CMA "are not risks the Provident shareholders should bear", urging its shareholders to take no action in relation to the offer.
Provident added: "Non-Standard Finance is not suitable or competent to acquire and manage Provident, which is more complex, dual-regulated and approximately eight times the size of Non-Standard Finance."
Shares in Provident were up 0.8% Wednesday morning at 511.00 pence each. Non-Standard Finance was untraded at 51.80p. Schroders shares were down 0.1% at 3,100.00p.
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