The Shareholder Forum

Special Program


Independent Analysis of Shareholder Interests

in a merger transaction proposed by

Providian Financial Corporation

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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



PROXY Governance, Inc., a new subsidiary of FOLIOfn offering independent proxy advisory services to investors, published a report dated August 18, 2005 and granted permission for its use in this Forum program.  The summary and conclusion sections are copied below, and the full report can be downloaded from this link:


PROXY Governance, INC.

Contact: Alesandra Monaco

Published: 08/18/2005




Special Meeting

Date: 08/31/200Record Date: 08/01/2005





[page 9]


We note with some concern, the market’s reaction to the merger announcement as Providian shares declined that week, the somewhat mixed analyst reactions to the offer price, and Putnam’s opposition to the deal on the grounds that the offer price is insufficient. We are also concerned that – based on the background notes to the merger and the June 6 conference call – the level of transparency with regard to management and the board’s decision-making process is unacceptably low. While we recognize that such documentation does not necessarily offer comprehensive insight into the decision-making and negotiation process, its absence, especially when combined with the above developments, does raise legitimate questions over the extent to which Providian’s board in fact “did its homework” with regard to potential opportunities and whether shareholders are being offered an appropriate premium. Similarly, while Providian engaged two very well-known financial advisors for the transaction, we note that these advisors collaborated in performing each of their financial analyses, and we are always somewhat uncomfortable when the “fairness” opinions are rendered by entities which have a significant financial stake in the completion of the transaction.

On balance, however, we believe that the offer price probably does represent a minimally acceptable acquisition premium. We recognize that there has been longstanding speculation over Providian as a potential takeover target and that to some extent, an acquisition premium was already built into the company’s stock price. We also note that since a significant portion of Providian’s business stems from the sub-prime market, it would be inappropriate to compare premiums with other credit card companies that have stronger credit and customer portfolios; despite the strength of Providian’s turnaround story, it remains a higher risk prospect. As such, we believe that WaMu’s stronger credit quality will help to improve Providian’s funding costs and enable the company to grow, given the broader marketing platform and other resources. The move into the credit card industry, in turn, will help WaMu to diversify its revenue and customer base. As noted above, Providian shareholders will own approximately 13.5% of the combined company and will have (should they choose to remain shareholders) a continuing stake in its financial success. However, as indicated by Providian’s financial advisors, we note that it is unclear the extent to which WaMu’s provisions for the losses stemming from loan and lease portfolios and for impairment of mortgage servicing rights and related risk management strategies are sufficient. Based on various press reports, we believe that it is possible that one reason for WaMu’s being perceived as a possible acquisition target up until the proposed merger with Providian, was likely because, given the rapidly consolidating industry trend, the markets perceived that WaMu did not have sufficient market presence to play as competitive a role in its existing businesses in the future as it has in the past. It is not clear that WaMu with Providian will continue to be an attractive takeover target, which could affect its share price in the longer term.


On balance, PROXY Governance supports this merger proposal because we believe that Providian shareholders will in the long run and in view of the competitive landscape, be better off as shareholders of a financially stronger and more diversified company. The complementary nature of the two companies’ businesses and customer bases – and more importantly, WaMu’s stronger credit position – will provide Providian with a stronger platform for competing in the U.S. credit card industry. However, as previously discussed, we have some substantial reservations with regard to the decision-making process, as well as lingering questions which we feel have been inadequately addressed regarding whether shareholders may have been able to receive a better deal.


© 2005 by PROXY Governance, Inc.™ All Rights Reserved. The information contained in this proxy analysis is confidential, for internal use only in accordance with the terms of the subscriber’s subscription agreement, and may not be reproduced or redistributed in any manner without prior written consent from PROXY Governance, Inc. All information is provided “as is” and without any warranty, is not intended to solicit votes, and should not be relied on for investment or other purposes.




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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.

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.