Provident Financial Insurance Arm Up for Sale ; BUSINESS

By James Daley

Provident Financial, the UK's largest doorstep lender, unveiled plans to auction off its insurance division yesterday, after revealing it had received a number of approaches for the business.

A sale of the division could raise up to [pound]225m, according to analysts, although house brokers Dresdner Kleinwort and Merrill Lynch have estimate the business to be worth [pound]155m and [pound]188m respectively.

In a statement to the market yesterday, Provident said: "In response to third party approaches for its non-core insurance business, Provident Insurance [the group] has decided to commence discussions with a view to establishing whether greater shareholder value could be created through the sale of that business than would be ... achieved if it were to remain within the UK group following the demerger of its international business."

It said further announcement would be made when it published its full year results on 7 March, adding that investment banking boutique Lexicon Partners had been appointed to advise on any potential deal.

Admiral, which owns car insurance brands such as Elephant and Diamond, is believed to be interested in the company, while a private equity backed management buyout bid is also expected to be made.

The business runs under the Provident and Yes Insurance brands, and specialises in writing motor insurance cover for women and the elderly.

Provident Insurance, which was bought back in 1978, now has almost 500,000 customers and generated a profit of some [pound]40m in 2005. Earnings for 2006 are expected to be slightly lower due to tough competition in the car insurance market early in the year, which drove premiums down.

Yes Insurance, its online proposition, was launched just last year shortly after the company shut down its car financing division, Yes Car Credit. The company is in the process of demerging its international business, which it plans to float off later this year.

Shares in the company rose as much as 7.2 per cent in early trading, blasting through the 800p mark for the first time in almost six years. However, the shares fell over the course of the day, to close up just 1.3 per cent at 760p, giving the group a market value of [pound]1.9bn.

Analysts tentatively welcomed the news yesterday. In a note, Merrill Lynch said it was a positive move from a strategic perspective, claiming that the division had never really benefited from being part of the group, other than in terms of having greater access to capital.

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