(Reuters) - The former boss of Provident Financial is leading an unsolicited 1.3 billion pound bid to buy the firm where he spent 22 years but which has run into trouble with regulators worried about the rates it charges on loans.
The two firms provide short-term loans to consumers who might otherwise struggle to borrow from more mainstream banks, a sector under pressure as lawmakers want to rein in punitive interest rates charged on borrowing by often vulnerable people.
Non-Standard Finance, founded only five years ago by John van Kuffeler, has a market value of just 180 million pounds but has the backing of several of Provident’s shareholders for a proposed turnaround plan.
Provident’s share price has fallen 75 percent in the last two years as the company deals with a botched reorganisation of its home credit business that led to profit warnings, the departure of its chief executive and suspension of dividend.
Kuffeler, who left Provident after 22 years there in 2013, first tried to bid for his former company early last year. Under Kuffeler, Provident grew into a blue chip stock, before falling out of the index after it ran into trouble.
“That approach was rebuffed and since then Provident has further lost its way,” he said on Friday.
Provident, established in 1880 and based in the northern English city of Bradford, said it was considering the offer.
When asked by journalists why NSF, as a subprime lender, was better placed to handle the regulatory backdrop than Provident, Kuffeler said three of Provident’s units were facing increased scrutiny from the financial watchdog.
“This is partly because of having a board which is not experienced in the sector,” he said.
NSF, set up only five years ago, said the transaction was supported by investors Neil Woodford, Invesco and Marathon who together hold over 50 percent of both Provident and NSF.
The offer values each Provident share at 511 pence, flat to Provident’s close of 511.4 pence on Thursday.
Provident “shareholders are being asked to accept a nil premium offer for better management,” Jefferies analysts said.
Provident shares were up 4.9 percent at 563.2 pence at 0946 GMT. At its peak in 2015, Provident shares were valued as much as 2,674 pence.
Kuffeler said he was not worried about the impact of Brexit on subprime lending as any economic downturn would mean “more customers fall into subprime lenders as bigger banks tighten scorecards.”
Graphic: Provident Financial investors look (tmsnrt.rs/2BPrqSS)
Provident had begun to show some signs of a turnaround last year after prolonged problems at its door-to-door lending business but said last month that it expects 2018 earnings to be at the lower end of market expectations, its third warning in 18 months.
NSF said on Friday that it proposed to simplify Provident, selling off its vehicle finance arm Moneybarn and divesting or shutting short-term unsecured loans business Satsuma.
NSF also said it also plans to demerge Provident’s home credit business and Loans at Home to assist with Britain’s competition watchdog’s approval process and for Loans at Home to be admitted to trading either on the main market or London’s junior market.
The NSF board would then oversee all of the remaining business.
NSF was advised by Ondra LLP and Deutsche Bank on the financial terms of the offer.
Reporting by Noor Zainab Hussain in Bengaluru; Editing by Keith Weir