Providian Investor Calls Bid Too Low
Providian Financial Corp.’s second-largest shareholder said Monday that it would oppose the sale of the San Francisco-based credit card company to Washington Mutual Inc., saying the $6.5-billion price was too cheap.
Putnam Investments, the Boston mutual fund company, said it would vote its 7.5% stake in Providian against the sale at a special shareholder meeting Aug. 31. It called the offer “well below” the fair value of Providian stock.
Putnam’s decision to oppose the deal was influenced by Bank of America Corp.’s June 30 agreement to buy MBNA Corp., a larger and healthier credit card company, for $35 billion. Washington Mutual’s offer represented a 4% premium over Providian’s market value at the time of the offer; MBNA shareholders were offered a 31% premium.
Putnam portfolio manager David King wouldn’t specify an acceptable price. In an interview, he said the preferred outcome for shareholders would be for Providian, recovering strongly from a near-meltdown four years ago, to remain in business as one of the last of the stand-alone card companies.
“Or if it plays out that the toothpaste can’t be put back in the tube,” King said, “then we think an open auction would bring a higher price than this privately negotiated sale.”
Providian and Washington Mutual said they would continue to work on plans to combine the companies and expected the deal to be completed early in the fourth quarter this year.
“While we respect Putnam’s opinion, Providian continues to believe that the proposed merger with Washington Mutual is priced fairly and will be beneficial for our shareholders,” Providian Senior Vice President Alan Elias said.
The announcement had little effect on the companies’ stocks: Providian rose 8 cents to $18.98, and Washington Mutual rose 2 cents to $42.50.
Seattle-based Washington Mutual, the nation’s largest savings and loan, agreed June 6 to acquire Providian in a cash-and-stock transaction. WaMu, as the company is known, said the deal would help diversify its operations and allow Providian to market cards to the thrift’s millions of customers.
King said Providian’s latest financial report, showing continued strong earnings and progress in cleaning up delinquent loans, was the biggest factor in Putnam’s decision.
“We believe this company would be worth significantly more than this privately negotiated price at an open auction,” King said, adding that 50 to 100 financial services firms would have the resources to bid for Providian.
Richard X. Bove, an analyst at Punk, Ziegel & Co., said Providian was “in the midst of a stunning turnaround” and was likely to see its profit rise more than 40%. By comparison, MBNA is “showing signs of strain,” with a projected earnings decline of 3.4% this year.
It is not unusual for a mutual fund company to vote against management at a corporation whose stock it owns, but it’s rare for a major one to broadcast its complaints. Putnam and its parent, insurer Marsh & McLennan Cos., would be expected to regard Washington Mutual and Providian as potential customers and not take them to task publicly, said Russ Kinnel, head of fund research for Morningstar Inc.
Kinnel said the action might be related to Putnam’s campaign to repair its reputation as an ally of investors after its role in the mutual fund scandals. The firm replaced its longtime chief executive, Lawrence E. Lasser, in November 2003 after certain of its portfolio managers were accused of profiting from trades at the expense of fund shareholders. Since then, withdrawals by investors in its funds have continued to outpace new inflows.
Putnam may have made the announcement to get the attention of other big Providian shareholders without having to approach them directly, Kinnel said. Providian has a large number of institutional investors, including Legg Mason Capital Management, its largest shareholder, and Vanguard Group.
