On April 2 DFC Global (DLLR) announced that they were selling out to private equity firm Lone Star Funds for $376 million. The deal, which will pay stockholders a 6 percent premium on their shares, follows a tumultuous 2014 that saw DFC struggle to keep their controversial lending business afloat in increasingly hostile markets.
DFC, which provides pawnbroking services and loans to predominantly low-income patrons, had been hamstrung by the UK government amid complaints that the company took advantage of their customers vis-à-vis predatory loan rates. Despite protestations from the company that loan recipients were well-informed of the risks associated with so-called “payday loans,” the UK had grown increasingly hostile towards DFC, stonewalling attempts by the company to expand.
The payday loan industry’s woes are not limited to the UK market. DFC compatriot Cash Store Financial (CSFS) has faced similar resistance from Canadian financial regulators. And the entire ultra-high interest lending industry as a whole faces major opposition in America, with several US states banning the industry outright, notably New York, Pennsylvania, and Massachusetts.
The industry suffers as well from global financial rebound. Favorable conditions negatively affect the price of gold, of which payday loan companies traffic extensively. Likewise, the more money customs make, the less likely they are to be forced to patronize predatory lenders that charge outrageous interest rates.
As a result of the increasing hostility from state and federal governments coupled with the current bull market, DFC had plunged this year. Just prior to the announcement of the Lone Star buyout, shares of the company had plunged 19.68 percent on the year, and the last earnings report was a disaster.
The deal provides some respite to investors, and stops the bloodletting that had marked the company’s performance this year. On the deal, DFC CEO Jeff Weiss said, “We are pleased to have reached this agreement, which delivers immediate cash value to our stockholders.” Weiss further voiced optimism that DFC could still turn it around, asserting that “we look forward to taking advantage of enhanced financial flexibility (from going private) to find new ways to build our business while continuing to meet and exceed the needs of our global customer base.”
The deal valued DFC at $9.50 a share, which will be paid out to stockholders in cash. Including the company’s sizable debt, the deal will total some $1.3 billion. It is expected to close sometime in the third quarter of 2014.
DFC rose 5.62 percent on the day to hit $9.48 a share, a price that, barring any unusual developments in the deal, it should hover until it closes.
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