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UK challenger bank shares jump on news of FirstRand's Aldermore approach

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UK challenger bank shares jump on news of FirstRand's Aldermore approach

Shares in U.K. challenger banks jumped on news that FirstRand Ltd., one of South Africa's so-called "big four" banks, had approached Aldermore Group Plc with a takeover offer.

FirstRand made a proposal to acquire Aldermore's entire share capital for 313 pence in cash, according to an Oct. 13 stock exchange announcement from the London-based specialist lender. Shares in Aldermore opened at 258 pence per share at 8 a.m. local time on Oct. 13, before touching 310.10 pence at 12:30 p.m.

FirstRand's offer for Aldermore, which provides mortgages (including buy-to-let), and financing for small businesses, took U.K. equity analysts by surprise.

"We were not aware that they were looking for a buyer, and FirstRand is not a name that would have come to mind. But this is good for Aldermore's peers, and it's telling of the underlying appeal of specialist lenders," Portia Patel, an equity research analyst covering diversified financials at Liberum, said in an interview.

Other takeover candidates

The move should be supportive of valuations among the U.K. challenger banks, Patel said, adding that mortgage specialist OneSavings Bank Plc was the most likely candidate after Aldermore for a hypothetical takeover bid from a larger player.

Shares in other U.K. challenger banks climbed on the news of FirstRand's offer for Aldermore. OneSavings shares opened at 378 pence per share on Oct. 13, rising to 393.4 pence per share at 12:30 p.m., shortly after Aldermore's 12:18 p.m. stock exchange announcement. Virgin Money Holdings (UK) Plc shares opened at 274.6 pence per share, climbing to 285 pence at 12:30 p.m., while Metro Bank Plc opened at 3541 pence per share and rose to 3568 pence at 12:30 p.m.

Aldermore, along with Virgin Money Holdings, Shawbrook Group Plc (now taken private) and OneSavings, saw its share price take a battering following U.K.'s Brexit vote in June 2016 thanks to fears around economic uncertainty and a possible fall in U.K. house prices. Aldermore stocks lost 32% of their value on June 24.

James Hamilton, an analyst covering specialty finance research at Numis Securities, agreed that FirstRand's approach had been unexpected, and that there had been no sign that Aldermore was seeking a buyer. However, Aldermore has been "following a clear strategy" and had been trading at a substantial discount for much of the year, making it a potentially attractive takeover target.

FirstRand and Aldermore did not respond to requests for comment, although FirstRand subsequently confirmed in a trading statement that it had made an approach for Aldermore.

"FirstRand has been assessing opportunities to build a sustainable long-term deposit franchise to fund its strategy to grow and diversify the revenues of its current U.K. business. The possible acquisition of Aldermore, with its unique operating model, market positioning and strength in deposit taking, would provide the ideal platform for FirstRand to fulfill this strategy on an accelerated basis," the statement said.

FirstRand is already active in the U.K. consumer lending space, and has owned U.K. car finance business MotoNovo Finance since 2006. South African-based paper Business Day reported that FirstRand had been "actively pursuing funding possibilities" for MotoNovo.