October 13, 2017 / 12:04 PM / a year ago

UPDATE 4-UK's Aldermore in talks over $1.3 bln takeover by FirstRand

* Possible offer for 1 bln stg

* Aldermore likely to recommend 313 pence per share offer

* Aldermore’s shares jump more than 18 pct (Adds industry context)

By Noor Zainab Hussain

Oct 13 (Reuters) - Aldermore Group is in talks over a possible 1 billion pound ($1.3 billion) takeover by South African lender FirstRand, the latest of Britain’s co-called “challenger” banks to consider selling up in a tough market.

Aldermore, founded in 2009 by a former Barclays executive with backing from private equity firm AnaCap, said on Friday it had received an “indicative proposal” from South Africa’s biggest lender by value of 313 pence per share in cash.

“(The) Board of Aldermore has indicated to FirstRand that it is likely to recommend a firm offer at this (313 pence) level,” it said in a statement.

Britain’s challenger banks emerged after the financial crisis to fill a gap in small business lending and capitalise on problems at big banks such as Royal Bank of Scotland and Lloyds.

However, they have been seen as ripe for takeovers recently as a prolonged period of low interest rates and sluggish UK economic growth have squeezed earnings, while the pound’s fall has made them cheaper for foreign buyers.

FirstRand said Aldermore would help build a deposit base to fund and diversify its UK business.

At 1528 GMT, Aldermore’s shares were up 18.8 percent at 304.2 pence, their best day since listing in 2015. The proposed offer is a 22.2 percent premium to Thursday’s closing price. FirstRand’s shares were down 1.9 percent at 53.35 rands.

FirstRand has been looking to return to developed markets in recent months following a strategy revamp prompted by slowing growth and rising risks elsewhere in Africa, which was once at the heart of its expansion plans. It already runs MotoNovo, a vehicle financing business, in Britain.

African markets have been depressed by a slump in oil and other commodity prices - export mainstays of many economies - leading companies from insurer MMI Holdings to food maker Tiger Brands to scale back operations.

Aldermore has been one of the better performing UK challenger banks, reporting a 32 percent rise in profit for the first half of the year, helped by strong demand from small- and medium-sized businesses, homeowners and landlords.

Rival Shawbrook was bought by private equity groups earlier this year.

Shares in challenger banks Virgin Money and OneSavings jumped about 4 percent after the news of Aldermore’s proposed deal.

Virgin Money, which earlier this year looked at buying assets from the Co-operative Bank, is seen as an industry consolidator as it seeks to ease pressure on margins and offset the tougher trading environment, banking sources said.

Last year Clydesdale Bank IPO-CLBP.L made an offer to take over Royal Bank of Scotland’s Williams & Glyn business, after Spain’s Banco Santander walked away from talks.

Under UK Takeover Panel rules, FirstRand has until Nov. 10 to announce a firm intention to make an offer for Aldermore or walk away.

JPMorgan, RBC Capital Markets and Lazard are advising the British company.

$1 = 0.7531 pounds Reporting by Noor Zainab Hussain in Bengaluru, Pamela Barbaglia and Ben Martin in London and Tiisetso Motsoeneng in Johannesburg; Editing by Rachel Armstrong and Mark Potter

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