The Shareholder Forum

Special Program


Independent Analysis of Shareholder Interests

in a merger transaction proposed by

Providian Financial Corporation

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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



The New York Times
June 9, 2005

Pathmark Vote Tests Wider Issues of Shareholder Control

After years of investor activism, are shareholders winning or losing the struggle to be treated with the respect that company owners deserve? A vote today by investors in Pathmark Stores may provide an answer.

The shareholders of Pathmark, a supermarket chain in New York, New Jersey and Philadelphia, are voting on the purchase of a potentially controlling stake in the company by the Yucaipa Companies, an investment firm based in California. Yucaipa is run by Ron Burkle, a supermarket magnate who is better known as a major Democratic contributor.

The $150 million deal will initially give Mr. Burkle's company a 40 percent interest in Pathmark, if it goes through. But Yucaipa would also receive warrants to buy additional Pathmark shares that would increase the firm's stake to 60 percent. Pathmark's directors have recommended that shareholders approve the transaction.

Under the proposal, Yucaipa would buy its stake for about $7 a share. None of the Yucaipa money will go to Pathmark shareholders; it will go to the company, which will use it to spruce up some of the 142 Pathmark stores, build new ones and pay down debt. Pathmark's stock closed yesterday at $8.60.

If shareholders say yes to Yucaipa, Mr. Burkle's company will receive five board seats and will be in a position to prevent any future bidders from taking over the company. Yucaipa would also receive a five-year consulting contract worth $3 million a year, as well as the repayment of expenses up to $500,000 a year. Under the contract, Yucaipa would provide advice to Pathmark on corporate strategy, marketing and retail development.

The Yucaipa bid is certainly a ray of sunshine for Pathmark shareholders, who have endured some bleak years. The company, which emerged from bankruptcy protection in September 2000, said last week that it lost $2.1 million in the first quarter of fiscal 2005 and that sales at stores open at least a year inched ahead just 0.1 percent from the same period in 2004. The stock hit a low of $3.50 last fall after the company repeatedly reduced its earnings projections.

But some Pathmark shareholders question why the company's board continues to recommend the Yucaipa deal over competing bids that are far higher and that would actually put money in its owners' pockets.

For example, one bidder, which the company has not identified, said it would pay $8.75 a share to buy Pathmark outright. This offer is backed by a financing commitment, Pathmark regulatory filings have noted. (None of the bidders have identified themselves.)

Nevertheless, when they vote today, Pathmark shareholders will not be allowed to choose the better of the various offers that have been made for the company. Rather they will decide to accept or reject the Yucaipa transaction. Because they have been given so few details about competing bids for the company - such as who is making them and how they would be financed - Pathmark's shareholders are being asked to trust that their board has done the necessary due diligence to arrive at the appropriate decision on the deal.

Institutional Shareholder Services, an influential investor advisory firm in Rockville, Md., has advised its clients to vote against the Yucaipa deal. The firm said that Pathmark's board had failed to provide the company's shareholders with adequate rationale for rejecting an apparently superior bid for the entire company in favor of the offer of a partial investment from Yucaipa at a lower price.

"It's never been clear to us that the board went through all the steps to ensure that they had the best bid on the table," said Pat McGurn, special counsel at I.S.S. "There have been filings made in the last 48 hours talking about new bids coming in. It's one of those situations where from our clients' perspective we wanted to indicate that the process should play out a little bit longer."

Harvey M. Gutman, Pathmark's spokesman, said the company was disappointed by I.S.S.'s view. "The proxy contains full and complete information of the extensive process that we have conducted," he said, "and we believe that the Yucaipa transaction is in the best interests of the shareholders."

Mr. Gutman declined to make Pathmark directors available to discuss their recommendation that shareholders approve the deal.

Among the reasons Pathmark's directors have given urging shareholder approval of the Yucaipa deal were the investment firm's "generally successful record" and the promise that stockholders would participate in any upside that might result from improved performance at the company in coming years.

The fairness opinion on the Yucaipa proposal, provided by Dresdner Kleinwort Wasserstein Securities, did not address the relative merits of any alternative bids for Pathmark.

But Pathmark's board said that the $8.75-a-share offer was not a better deal because it was unlikely to be completed for several months, while the Yucaipa transaction could be done this month. In addition, the board said that further documentation from the bidder's lead lender was needed.

Under the terms of the Yucaipa deal, Pathmark's current management will stay on. But the transaction, if it is approved by shareholders, will result in a change of control at Pathmark, allowing its executives to cash in all their stock options. The company did not disclose, however, the amounts its executives stand to receive from the options or from severance agreements that may be activated by the deal.

Mr. McGurn called Pathmark's disclosure on such matters inadequate. He added that the results of today's vote could be seen as a barometer of the current state of shareholder activism.

"Ultimately, if Pathmark is forced to delay this meeting or they don't get adequate votes they will have gotten a strong message from investors that they didn't feel there was enough information upon which they could make a decision," Mr. McGurn said. "That would be a warning shot across the bow for companies who think that if they approve a deal, their shareholders aren't going to question it."





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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.

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