Firm offer by Non-Standard Finance plc (“NSF”) for Provident Financial plc (“Provident”)
· All-share offer by NSF for Provident to create a leading UK non-standard finance provider with strong positions in credit cards, home credit, branch-based lending and guarantor loans
· Transaction formally supported by shareholders holding over 50 per cent. of Provident's share capital, representing a significant statement of support in favour of the NSF management and its future plans
· Transformation plan to:
· Revitalise Provident's prospects and rebuild culture delivered by a strengthened management team with proven sector expertise
· Unlock substantial value for Provident and NSF shareholders, whilst benefiting customers and employees
· Achieve cost savings, revenue synergies and lower funding costs as well as the potential for capital returns over time from disposals and capital efficiency
· Return Provident's culture to one focused on positive customer outcomes, working closely with regulators
Summary and highlights
NSF announces the terms of a firm offer to acquire the entire issued share capital of Provident (the “Transaction”).
· Under the terms of the Transaction, which will be subject to the Conditions and further terms to be set out in the Offer Document, Provident Shareholders will be entitled to receive:
For each Provident Share: 8.88 New NSF Shares
· Based on NSF's Closing Price of 58 pence per NSF Share on 21 February 2019 (being the last Business Day before the date of this announcement), the Transaction:
→ values each Provident Share at 511 pence;
→ values the entire issued and to be issued ordinary share capital of Provident at approximately £1.3 billion; and
→ would result in Provident Shareholders owning approximately 87.8 per cent. of the Enlarged NSF Group and becoming major participants in the potential future value creation in the Enlarged NSF Group.
· The NSF Board believes that the Transaction would deliver significantly greater benefits for both Provident Shareholders and NSF Shareholders than either Provident or NSF would otherwise be able to deliver on their own.
· The New NSF Shares will be issued to Provident Shareholders credited as fully paid and will rank pari passu in all respects with the NSF Shares in issue at the time the New NSF Shares are issued pursuant to the Transaction, including the right to receive and retain dividends and other distributions declared, made or paid by reference to a record date falling after Completion. The New NSF Shares will not carry any entitlement to receive any final dividend declared by NSF in respect of the year ended 31 December 2018.
· Conditions to the Offer include approval of the issuance of the New NSF Shares by NSF Shareholders, receipt of approvals from the FCA, the PRA and the CBI, receipt of approval from the CMA and other conditions and further terms as set out in Appendix 1.
· Woodford, Invesco and Marathon have given irrevocable undertakings to accept the Offer and letters of intent to accept (or procure acceptance of) the Offer in respect of, in aggregate, over 50 per cent. of Provident's issued share capital.
· NSF intends to complete a demerger of its home credit business, Loans at Home, to assist with the CMA competition approval process and for Loans at Home to be admitted to trading either on the Main Market (with a standard listing) or on AIM. Although the timing and structure of the Demerger remain subject to further consideration, including by the CMA, it is expected that the Demerger will take place simultaneously with, or very shortly following, Completion, thereby allowing Provident Shareholders who participate in the Transaction, as well as existing NSF Shareholders, to receive shares in the newly-listed Loans at Home.
· The NSF Board, which has been so advised by Ondra LLP and Deutsche Bank as to the financial terms of the Transaction, considers the terms of the Transaction to be fair and reasonable. In providing their advice to the NSF Board, Ondra LLP and Deutsche Bank have taken into account the NSF Board's commercial assessment of the Transaction.
· NSF will have the right to reduce the number of New NSF Shares that Provident Shareholders will receive under the terms of this Transaction by the amount of any dividend (or other distribution) which is declared, paid or made by Provident to Provident Shareholders, on a basis to be determined by NSF. NSF will increase the number of New NSF Shares that Provident Shareholders will receive under the terms of this Transaction by the amount of any dividend (or other distribution) which is declared, paid or made by NSF to NSF Shareholders by reference to a record date falling prior to Completion, save for any final dividend declared by NSF in respect of the year ended 31 December 2018.
NSF as a growth driver
NSF was founded in 2014 by a highly experienced management team led by John van Kuffeler with the objective of acquiring and then growing businesses in the UK's non-standard consumer finance sector. Regulated by the FCA, the sector is fragmented, with few large, well-capitalised groups, creating an opportunity for NSF.
Since its creation, NSF has experienced significant growth, leading to a total net loan book value of over £300 million as at 31 December 2018 (reflecting year-on-year growth of 28.5 per cent. for the 12 month period ended 31 December 2018) and a combined customer base of over 180,000 from its network of 130 locations across the UK. This growth has been driven by acquisitions, in accordance with the company's founding objective, and organically by the diligent execution of NSF's strategy by its highly experienced management team, creating a leading player in NSF's chosen segments of the non-standard finance sector. At the same time, NSF is focused on ensuring the delivery of good customer outcomes whilst maintaining tight controls on risk and impairment. Against this backdrop, the NSF Board believes that the NSF Share price does not reflect the underlying value or progress of the business and has been hindered by NSF's concentrated shareholder register and low levels of liquidity.
Strategic rationale
NSF intends to capitalise on its operational and commercial success by acquiring and transforming Provident to unlock substantial value for all shareholders of, and stakeholders in, both Provident and NSF. The Transaction is expected to create a well-balanced group with leading positions in some of the most attractive segments of the non-standard finance sector.
Provident is a company which has faced a number of challenges in the recent past. However, the NSF Board believes Provident continues to have significant potential which, under the right leadership and pursuing a revised business strategy, can be unlocked for the benefit of Provident Shareholders, employees and customers. A letter to Provident employees from John van Kuffeler, the NSF founder and Chief Executive, is set out at Appendix 4 of this announcement.
The NSF Board believes the Transaction will:
· establish the Enlarged NSF Group as a leading non-standard finance provider that can meet the evolving needs of customers across a range of different product categories in a growing sector;
· bring the combined business under the leadership of the highly-experienced NSF management team that has a history of creating shareholder value in the UK non-standard finance sector;
· deliver more attractive and sustainable shareholder returns, including distributions to shareholders, than each of Provident and NSF might achieve on their own;
· deliver growth and improve profitability prospects through the execution of NSF's transformation plan to revitalise Provident's performance, realise operational and funding synergies and create the opportunity for capital returns over time;
· simplify the business portfolio through the sale of Moneybarn, the Demerger and the sale or closure of Satsuma;
· offer a broad product range to NSF and Provident customers and the wider non-standard finance sector to take full advantage of cross-selling opportunities;
· restore Provident's culture, enhancing the focus on delivering positive customer outcomes; and
· bring best-in-class regulatory practices and relationships to each of Provident's businesses as part of the Enlarged NSF Group, restoring the confidence of regulators in both Provident and Vanquis as part of the Enlarged NSF Group.
The NSF Board expects the Transaction to remedy Provident's recent disappointing financial performance, operational shortcomings and ongoing cultural issues. As a matter of priority, the NSF Board intends to address:
· the Provident Board's limited operational experience in the non-standard finance sector and the significant turnover in senior management at Provident Board, group and divisional levels;
· Provident's ongoing cultural challenges as demonstrated by a series of recent regulatory sanctions, including from the ICO, ASA and FCA;
· Provident's disappointing financial performance and its management's inability to deliver shareholder returns;
· Provident's high and rising central costs;
· the size of the cost base in Provident's home credit business where, despite the business' significant scale, costs remain high as a percentage of revenue;
· Provident's inability to effect positive operational change, exemplified by the unsuccessful project to transform Provident's home credit business;
· Provident's unsuccessful implementation of its recovery plan outlined in the prospectus issued in connection with the Provident rights issue in February 2018;
· the series of regulatory failures within the Provident Group which has led to enhanced supervision by the FCA, increased capital requirements from the PRA, and a risk mitigation programme agreed with the CBI; and
· Provident's failure to enter high growth segments of the non-standard finance sector, including the guarantor loan market.
NSF therefore believes the Transaction will reposition and revitalise Provident's businesses and their respective product offerings within the non-standard finance sector, enhancing their prospects for profitable growth. Under the leadership of the NSF Board and strong management team, the Transaction also represents an opportunity to unlock substantial value from an enlarged customer base in a highly specialised sector.
NSF's plans for the Enlarged NSF Group
To effect this transformation, the NSF Board intends to:
· retain the NSF Board to oversee the Enlarged NSF Group;
· focus the Enlarged NSF Group on four core divisions – credit cards, home credit, branch-based lending and guarantor loans;
· implement a transformation plan to revitalise the performance of Provident's core businesses within the Enlarged NSF Group through:
· the appointment of strengthened management teams;
· the execution of revised business strategies including an optimised product offering and the improvement of operational cost control;
· a review of the product offering and taking advantage of the cross-selling of products across the enlarged customer base; and
· the restoration of Provident's culture by enhancing the focus on delivery of good customer outcomes;
· realise operational cost synergies by, among other things, rationalising head office and central costs, simplifying management structures within Provident and reducing funding costs arising from increased scale and stability;
· simplify the structure of the Enlarged NSF Group to unlock shareholder value through:
· the intended demerger of NSF's home credit business, Loans at Home; and
· the sale of Moneybarn, Provident's vehicle finance business, and the sale or closure of Satsuma, Provident's short-term unsecured loans business, as NSF views both businesses as non-core to the future strategy of the Enlarged NSF Group. Sale proceeds are expected to be returned to shareholders of the Enlarged NSF Group, subject to the outcome of discussions with lenders to the Enlarged NSF Group;
· restore the confidence of regulators in the management of both Provident and Vanquis over time, a process that NSF believes should permit the release of excess capital from the Provident Group; and
· apply to transfer NSF's listing on the London Stock Exchange from a standard listing to a premium listing as soon as possible following Completion.
The compelling nature of the Transaction is evidenced by the level of shareholder support received by NSF in respect of the Transaction. Each of Woodford, Invesco and Marathon, in their capacity as Provident Shareholders, have irrevocably undertaken, and given letters of intent, to accept (or procure the acceptance of) the Offer in respect of, in aggregate, approximately 50.01 per cent. of Provident's issued share capital. This represents a significant statement of support in favour of the NSF Board, its management approach and its plans for the Enlarged NSF Group, over the existing Provident Board.
Commenting on the Transaction, John van Kuffeler, the founder and Chief Executive of NSF, said:
“This transaction will create a market leader in the non-standard finance sector with a strong position in all four main segments. We have recognised the strong logic and value creation potential of a combination with Provident for some time and hence approached the Provident Board with a proposal in January last year. That approach was rebuffed and since then Provident has further lost its way. However, NSF has extensive management expertise and experience, and the correct strategy to turn Provident around and release significant value by combining it with our own fast-growing businesses for the benefit of customers, employees and investors. I'm delighted that holders of over 50 per cent. of Provident's shares have given their support to our proposal today.”