LONDON (Reuters) - Consumer lender Provident Financial will auction its car insurance business, Provident Insurance, following approaches for the unit, which analysts estimate could fetch over 200 million pounds.
Provident said on Wednesday that third-party approaches had prompted it to consider whether a sale of the non-core unit would offer greater value for shareholders. Lexicon will conduct the auction.
Shares in Provident, which is in the process of demerging its international business, jumped 3.3 percent to 775 pence by 10 a.m., valuing the company at almost 2 billion pounds.
"We believe the business could fetch around 225 million pounds, based on the net present value of the division’s through-the-cycle earnings," Katrina Preston, analyst at Bridgewell, said in a research note.
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She said interest is most likely to come from private equity firms or small, intermediated insurers.
The business, bought in 1978 and with about 478,000 customers, reported a record profit of 40 million pounds in 2005. But it has said 2006 profits will be below that after a dip to 19 million pounds in the six months to June, as tough competition pressured premiums.
Provident Insurance reported gross written premiums of 155 million pounds in 2005 and specialises in non-comprehensive motor policies for women, drivers of older cars or a household’s second car. It distributes its policies through a network of over 4,000 brokers and online through yesinsurance.co.uk.
Merrill Lynch last week estimated the insurance business was worth about 188 million pounds in a research note.
Provident said an update on the sale process, as well as the demerger of its international business, would be made at the time of its annual results on March 7.
