UK unsecured credit provider Non-Standard Finance’s (NSF) pursuit to acquire rival sub-prime lender Provident Financial for about £1.3bn has hit a roadblock with the Competition and Markets Authority (CMA) launching an investigation into the anticipated transaction.
Image: Head Office of Provident Financial in Bradford. Photo: courtesy of Gabriel Szabo/Guzelian/Provident Financial plc.
The CMA has started phase 1 of its inquiry into the potential merger between NSF and Provident Financial to investigate if the transaction would result in significant reduction in competition within any market or markets in the UK for goods or services.
The regulator noted that the possible merger could primarily result in an overlap in home credit services in the UK. It said that while NSF also provides guarantor loans and branch-based unsecured lending, Provident offers non-standard credit cards, online loan products and non-standard vehicle finance.
Both companies have a number of common shareholders that include Woodford Investment Management, Invesco Asset Management and Marathon Asset Management, noted the CMA.
The competition watchdog said that NSF, having acknowledged the competition impact the proposed deal could have on home credit, offered to demerge its Loans at Home business, which is among the largest providers of home credit in the UK. However, the CMA has raised concerns on whether the separated Loans at Home, if demerged, will be completely independent of NSF, as shareholders in the two companies would be the same.
The CMA has invited comments on the potential transaction on whether the proposed demerger of the Loans at Home business by NSF will address the home credit overlap and also on the overall transaction with Provident Financial.
The board of Provident Financial following the merger inquiry launched by the competition watchdog said that it was significantly concerned about the proposed remedy of the demerger of Loans at Home by NSF.
The company’s board said that it has concerns on the viability and sustainability of Loans at Home as a standalone business, on the cost of the demerger, and on the possibility of the government’s Good Work Plan making it more difficult for the home credit business to engage self-employed workforces.
In a statement, Provident Financial, said: “Given the formal investigation by the CMA only commenced today, the Provident Board further notes that it is now beyond any doubt that such investigation will not be concluded before 5 June 2019, the latest date for NSF to declare the Offer wholly unconditional.
“In order to declare the Offer wholly unconditional, the Provident Board believes that NSF would need to waive the CMA condition without knowing whether, or with what remedies, the combination of Provident and NSF would be approved, leaving Provident Shareholders exposed to a potential unknown and uncosted remedy, which it believes would be materially value destructive.”