Battle over hostile takeover deepens as chairman says NSF’s actions were ‘unlawful’

The Chairman of Bradford-headquartered listed sub-prime lender Provident Financial has this morning criticised the running of Non-Standard Finance (NSF) and once again urged shareholders to take action over the £1.3bn hostile takeover offer – as he says actions by NSF were “unlawful.”

Patrick Snowball

Publishing his letter this morning, chairman Patrick Snowball, who has been in the position six months, said the firm had been asking questions of NSF since the initial offer was made in February. Late on Friday, NSF released a statement stating that its had “identified certain technical infringements regarding historic distributions” made by NSF. NSF added at the time: “All of the infringements can be rectified and the NSF Board considers that none of the issues impacts the Company’s financial position or prospects or shareholder value. 

“These technical infringements, and the actions being taken to resolve them, have no bearing on NSF’s financial and operational performance or its strategy, including its Offer for Provident Financial.”

Snowball this morning reacted with a personal letter to shareholders stating: “While many of the questions put to NSF remain substantially unanswered, NSF finally acknowledged one of our questions last Friday evening and confirmed that certain of their dividends since 2015 have been in contravention of the Companies Act. They were described by NSF as “technical infringements” but the simple fact and truth of the matter is that they were unlawful.

“These unlawful distributions are a telling indictment of the competency of the NSF team and the weak oversight of their board and must call into question their ability to run a business some seven times larger than their own and one which includes a regulated bank.

“While NSF may now have accepted these failures under the Companies Act, through either indifference or arrogance or because they do not have the answers, they have failed to provide a comprehensive response to our other critical questions.

“I find this silence telling, particularly when it relates to straightforward questions regarding the future management of Vanquis Bank (which would be the largest business within the Enlarged Group), the implications of selling Moneybarn on the broader Provident Group or the genuine challenges of addressing the concerns for the CMA. On this latter point, NSF’s failure to make progress with their CMA submission creates further disruption for the business and yet more uncertainty for our shareholders.

“At this point, there is no new revelation about this deal; it is still the same dreadful deal that it was on day one. It is more of a coup d’état than a hostile takeover, spearheaded by a management team at NSF with a track record of value destructive acquisitions and facilitated by two powerful shareholders.

“These shareholders already together own about 54% of NSF, a business which has singularly failed to deliver pre-tax profits since the IPO and in which period its share price is down 48%.  This coup d’état may inflict a cost to shareholders of as much as £40m in transaction fees alone, and that’s before you take into account the other significant potential value-destroying elements of the deal.”

Snowball added that he joined the Provident Financial board because he felt he could give support and assistance to the management team which had already made good progress with the turn-around of the business in 2018, seeking to address the poor delivery of the business in prior years which had led to regulatory and financial issues.

He added: “We fully acknowledge those issues and this poor historical performance and our responsibility to deliver value and returns for you, our shareholders, but a flawed and risky transaction is the wrong way to proceed. I am confident that we have the right strategy and team in place to fulfil the value potential of Provident for our shareholders.” 

Snowball said that Provident Financial’s Chief Executive, Malcolm Le May,  should be congratulated for the achievements of last year – as the “strengthening of the balance sheet by the rights issue in April secured the future of the group and over the following 8 months the business delivered significant improvements in performance, governance and our regulatory position.” 

Snowball added: “This was done at a time of great uncertainty and with the management and Board in transition.” 

The chairman said that the sector was one that quite rightly received external attention from regulators and politicians. He added: “We have learned that good governance, adherence to regulatory best practice and putting the customer at the forefront, are absolutely fundamental to our ongoing success. These principles are non-negotiable. The cost of not complying has been clearly demonstrated in the past and shareholders should be very concerned about any suggestion of compromise in these critical areas.”

He concluded the letter by adding: “Shareholder, this is a poorly thought out transaction.  We see no benefit to those invested in Provident who do not have a similar holding in NSF. The Offer is fraught with risk for all Provident Shareholders. Now that the Panel has frozen the timetable, NSF may either do the right thing and let the CMA process play out during the Offer or alternatively decide to waive the CMA condition.  If it does the latter and succeeds in acquiring Provident, then you, as shareholders, would be invested in a group with no clarity as to whether the CMA will approve the transaction (and if so at what cost) or seek to unwind it.  Either way, we believe this could result in a significant cost for Provident Shareholders.

“I strongly recommend you to get behind our Board and management team and reject this dreadful and opportunistic transaction. Provident can generate far greater value for you as shareholders through delivering on its current strategy and fulfilling its potential than it could through a destabilising, hostile transaction which suffers from major strategic and financial flaws, has significant operational and execution risks and where the counterparty’s financial controls have recently been found wanting. This is simply not a transaction that is in the interests of Provident Shareholders.”  

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