NEW YORK (TheStreet) -- Prospect Financial's (PSEC) planned purchase of Nicholas Financial (NICK) an auto lender, was called off by the target after the Securities and Exchange Commission required Prospect to change the way it accounts for companies it owns on its balance sheet.
Nicholas announced the termination of its agreement Thursday, the deadline by which the deal had to be closed. Prospect had warned in its latest quarterly filing May 6 that the acquisition of Nicholas was not expected to close before the June 12 deadline, however it said it hoped to extend the deadline to close the deal, which valued Nicholas at $16 per share, or $322,377 including debt.
Prospect, one of top-yielding stocks in a sector known as business development companies (BDCs), announced Wednesday it will change its accounting methods going forward, thereby resolving a dispute with the SEC disclosed in the quarterly statement that had cast a cloud over the company. The announcement had caused the stock to sell off and prompted several shareholder lawsuits. BDCs are publicly-traded lenders that target small to mid-sized companies, pay few if any taxes and distribute large dividends to investors. Unlike other BDCs, Prospect regularly acquires companies rather than merely lending to them.
In terminating the deal, originally announced Dec. 17, 2013, Nicholas said it would "continue to retain Janney Montgomery Scott LLC as its independent financial advisor to assist the Board in evaluating strategic alternatives for the Company, including, but not limited to, the possible sale of the Company to Prospect or another third party, potential acquisition and expansion opportunities, and/or a possible debt or equity financing."
Calls to both companies were not immediately returned.