Analysts say NSF takeover of Provident is unlikely to go ahead

Goodbody concluded that if the deal fails, Provident could turn the tables and make its own bid for NSF.

Analyst John Cronin at Goodbody said the fact that there were a number of separate infringements "does not look good for NSF".

"We don’t think the top three shareholders in NSF (who support NSF’s reverse takeover offer for Provident – and own 65 per cent of NSF and just under 50 per cent of Provident) will be keen to see the deal complete on the current proposed terms without the support of sufficient numbers of the residual Provident shareholder base," said Mr Cronin.

"While the acceptance threshold for the offer is 90 per cent, NSF has given itself the bandwidth to run with a Scheme of Arrangement instead, which has a lower acceptance threshold.

"Moreover, we believe that the top three shareholders in NSF would be unsupportive of the NSF Board declaring its offer unconditional as to acceptances as, to do so, could be value-destructive in the context of their substantial (and much more valuable) shareholding in Provident."

On Friday, Provident said it was "gravely concerned" by NSF's failure to respond to the questions it raised two weeks ago.

Bradford-based Provident said its shareholders deserve clarity to enable them to make an informed decision on the merits, or otherwise, of NSF’s £1.3bn offer.

Provident said it has significant concerns about the offer, not least because NSF has repeatedly made pre-tax losses on a statutory basis, its share price is near an all-time low, and it would “opportunistically benefit from the relative financial strength” of Provident.

Provident’s chief executive Malcolm Le May said the terms of the offer remain highly unattractive for Provident shareholders.

Provident strongly advised its shareholders to take no action in relation to the offer.

Late on Friday, NSF said it had identified technical infringements regarding historic distributions. It said all of the infringements can be rectified and none will impact its financial position, prospects or shareholder value.

Mr Cronin said Goodbody's detailed analysis on the three specific questions that Provident raised pertaining to past distributions concluded that it appears that there were a number of separate ‘infringements’ on the part of NSF – one of which was clearly a circular intra group transaction.

"We believe that the confirmation that NSF has made certain technical infringements of the Companies Act 2006 is a blow to the NSF management team’s credibility and we harbour concerns in relation to how the FCA and PRA might think about the appropriateness of the NSF management team in the context of running a much larger group," he said.

"We suspect that Provident shareholders (including the top three) will arrive at the same conclusions as we have - that there is a risk (however small) that the NSF management team does not receive regulatory approval to run the enlarged NSF/Provident."

However, Goodbody said there is strong industrial logic to putting the two businesses together, once the personalities are stripped out of the equation.

"We have engaged with a number of investors in recent weeks on these proceedings and shareholders in NSF and/or Provident overwhelmingly agree with this view," said Mr Cronin.

"So, we see the deal happening at some stage – just not on the current proposed terms. Thinking this through, we suspect that the top three shareholders will pull the irrevocables and, to the effect that they can visibly engineer certain further changes at Provident (we suspect they can’t just turn ‘full circle’ without forcing some change), we would see them potentially move to seek to drive a Provident takeover of NSF."

He added that this news could increase the chances of private equity firms making a bid for Provident.