The Shareholder Forum

Special Program


Independent Analysis of Shareholder Interests

in a merger transaction proposed by

Providian Financial Corporation

Forum Home Page


Providian Program Home Page

Program Summary

(August 10, 2005)

     In response to publicly expressed investor concerns about the pricing of a merger transaction proposed by the management of Providian Financial Corporation (“PVN”), a special “Forum” program has been initiated for the limited purpose of arranging an independent analysis of shareholder interests.

     The program is intended to develop a broadly applicable process for providing public shareholders with objective, professional analyses of transaction proposals, as an alternative to the current practice of relying on “fairness opinions” presented by a transaction’s proponents.

     Anyone with an interest in Providian or in the general objective of assuring informed investment decisions  is encouraged to participate in the program, which will be managed by Gary Lutin according to the usual Forum policies.

August 10, 2005



 Investment Dealers Digest


Fairness Opinions

A fairness opinion letter that Morgan Keegan issued in support for Warren Buffett's March bid for Clayton Homes Inc. has raised criticism that such letters are of little value. In fact, some even say that they are one of the last bastions of easy money to be made on Wall Street.

The letter, which Clayton Homes requested, was provided in March to the board of the maker of manufactured houses. It said that the $12.50 per share offered by the oracle from Omaha in late March, a 12% premium at the time, was a fair one. Morgan Keegan, an investment bank based in Memphis and owned by Regions Financial Corp., presented its letter on March 21 and a merger agreement was dated April 1.

But now, as shares of Clayton Homes trade above the offer price at close to $13 and other potential bidders are considering a higher bid, some say the letter is out of date. At any rate, it hardly appears to in the best interest of shareholders, who could be getting more than the acquisition price by simply trading Clayton's stock. Still, the Clayton board has used the letter as a justification for the Buffett deal long after the company's share price exceeded the bid price, said bankers.

"No professional investor pays any attention to a fairness opinion," said Gary Lutin, an investment banker who advises shareholders. "Their only real use is by lawyers as evidence that a board of directors has performed some kind of ritual that courts recognize as satisfying fiduciary duties."

Moreover, a valuation analysis of Clayton Homes, performed by Glass, Lewis & Co. LLC, a research firm that provides advice on issues of corporate integrity and proxies, concluded that the $12.50 offer was too low and recommended that shareholders reject it. The report said Clayton could fetch as much as $16 per share.

"We took a fresh look at the fairness of the deal in light of changed market conditions," said Gregory Taxin, chief executive of Glass Lewis, "We also evaluated Morgan Keegan's process and fairness letter and we concluded that there were some things about their analysis that we took issue with."

Taxin said that the opinion was rendered during the Iraq war, when the markets were depressed. After the war, stock prices of Clayton's peer group rose 40%, and Clayton's stock rose only to above $13, held back by the $12.50 cash bid, bankers said. The letter given on March 21 to Clayton's board provided "substantial value to the board at the time, but the world has since moved and changed," Taxin said.

Despite the run-up in prices and the objection to the bid by some institutional shareholders, Clayton's board stood by the deal, which had a no solicitation clause forbidding Clayton from seeking other bids. And last week, under pressure from another potential bidder, Clayton's board opened the bidding for a two-week period. In return for allowing the two-week window, Clayton Homes will pay Buffett's Berkshire Hathaway $5 million. Cerberus Capital Management is expected to make a bid.

Nevertheless, bankers point out that fairness letter have served as a convenient insurance policy that shows the board tried to get a fair price for the company. They also say that these pricey letters-which cost as much as $1 million or more-are one of the best kept secrets for making easy money among investment banks. "They are not worth the paper they are written on," said one banker.

Morgan Keegan, which charged just $250,000 for its letter, declined to comment. A spokeswoman said the bank "does not comment on our clients' business."


Copyright 2003 Thomson Media Inc. All Rights Reserved.




Inquiries, requests to be included in email distribution lists, and suggestions of new Forum subjects may be addressed to

This public program addressing shareholder interests in Providian Financial Corporation (PVN) was initiated with the leadership support of Putnam Investment Management, and according to the Forum’s stated "Conditions of Participation" is open to all shareholders of the subject company and to any fiduciaries or professionals concerned with their decisions. In all cases, each participant is expected to make independent use of information obtained through the Forum, and participation is considered private unless the party specifically authorizes identification.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.