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Woodford and Barnett back Provident Financial takeover

Fund managers Neil Woodford and Mark Barnett throw their weight behind takeover approach from Non-Standard Finance

Woodford and Barnett back Provident Financial takeover

(Update, adds Provident response) Fund managers Neil Woodford and Mark Barnett have backed a takeover bid for ailing doorstep lender Provident Financial (PFG) from smaller rival Non-Standard Finance (NSF).

The two managers own both companies and, with US fund group Marathon Asset Management, which is also backing the bid, hold more than half of Provident Financial's shares.

Non-Standard Finance, whose £180 million market cap is dwarfed by Provident Financial's £1.3 billion, was launched five years ago by John van Kuffeler, who ran Provident for 22 years until 2013.

The lender's bid for Provident does not ascribe any premium to the shares, valuing them at 511p, the price at which they closed yesterday, based on Non-Standard Finance's 58p closing price yesterday.

Shares in Provident Financial rose 3.3% to 528.4p this morning while Non-Standard Finance was up 7.6% at 62p.

'Non-Standard Finance could be punching above its weight,' said AJ Bell investment director Russ Mould.

'It seems like an opportunistic move to kick out the Provident management team and for van Kuffeler to regain control of his former empire.'

Provident Financial said in a short statement that it 'notes the unsolicited offer'.

'The board's considered response to the offer will be announced in due course,' it said.

'In the meantime, shareholders are strongly advised to take no action in respect of the Non-Standard Finance offer.'

The deal would offer Provident Financial shareholders 8.88 shares for every Provident share, giving them an 87.8% stake in the enlarged group.

Non-Standard Finance's pitch to Provident Financial shareholders is that it can unlock value in the group and turn around performance.

It wants to sell Moneybarn, Provident's vehicle finance business, and sell or close Satsuma, the short-term unsecured loans division, with proceeds returned to shareholders.

The Loans at Home business would be demerged and floated either on London's main market or the Alternative Investment Market.

'Provident Financial shareholders are being asked to accept a nil premium offer for better management,' said Phil Dobbin, analyst at Jefferies.

Peel Hunt analyst Anthony Da Costa flagged the difficulties in implementing the plan. 'Our concern is on the execution risk around extracting value given a period of economic uncertainty that could especially impact the unsecured lending space as well as potentially depress the sell value of "non-core" assets,' he said.

Van Kuffeler said he had approached Provident in January last year but 'was rebuffed and since then Provident has further lost its way'.

'However, Non-Standard Finance 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 consumers, employees and investors.'

Non-Standard Finance also plans to cut costs, focusing on Provident Financial's head office and home credit business.

In a letter to Provident employees, van Kuffeler said 'there are some areas of the Provident group which have grown out of all proportion to the business as a whole, including group head office and some of the central management functions at Provident's consumer credit division'.

As well as holding nearly 46% of Provident's shares between them, Woodford and Barnett are also heavy backers of Non-Standard Finance, with their combined stakes representing more than half the shares.

Both managers' backing of Provident has acted as a heavy weight on their funds over the last two years during a poor run of performance for the two.

Their funds are rooted at the bottom of the Investment Association's UK All Companies sector over three years. Woodford's flagship £4.8 billion Woodford Equity Income fund is down 5.3% over that period, while Barnett's Invesco Income and High Income funds are up just 3.8% and 4.3% respectively.

Shares in Provident are down 75% over the last 24 months after crashing 70% in a single day in August 2017 as the business announced the departure of chief executive Peter Crook, the scrapping of its dividend and revealed a Financial Conduct Authority investigation into its repayment option plan product. 

Woodford's stake in Provident has been the biggest single weight on his Woodford Equity Income fund over the last three years, knocking 4.2% off returns over the 36 months to the end of December.

The manager has stuck by the stock after its heavy setback, steadily increasing his stake and overtaking his former employer Invesco as the largest holder of the shares.

The company remains a top five holding in both his Woodford Equity Income and smaller Woodford Income Focus funds, accounting for 4.3% of both portfolios.

But the stock has drifted outside of the top 10 holdings in the Invesco Income and High Income funds.

Woodford, Barnett and Marathon were also cornerstone investors in Non-Standard Finance when the lender floated in 2015.

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