P R O X Y
P A P E R
Jason McCandless, Lead
Published: August 19, 2005
Providian Financial Corp
Industry: Regional Banks
Meeting Date: August 31, 2005
Record Date: August 1, 2005
Providian Financial Corporation (“Providian”) has entered into a merger
agreement with Washington Mutual, Inc. (“Washington Mutual“) valued at
approximately $6.5 billion. Providian shareholders have been offered 0.45
shares of Washington Mutual common stock in exchange for each share of
common stock they hold. The stock consideration will be paid 89% in
Washington Mutual common stock and 11% in cash. In all, shareholders have
been offered consideration valued at approximately $18.71 per share of
Providian they hold.
This amount represents a premium of approximately 4.4% over the closing
price of the Company’s shares one day prior to the announcement of the
agreement and a 12.5% premium over the average closing price during the
thirty days prior to announcement.
For the reasons more fully discussed below, we believe shareholders
should oppose this transaction.
First, the deal represents a small premium to market trading prices and
was struck without a market test or auction; no other potential buyers were
contacted. We now know there were several other buyers in the market for
monoline credit card companies and we suspect, with an effective process, a
better result could have been achieved and would be achieved today.
Rejection of this proposal will both serve as a signal to this board (and
other boards) that competitive processes should be used to achieve better
outcomes and will empower this board to negotiate a better deal, potentially
even with this buyer.
Second, Providian is performing strongly, as reflected in analyst
estimates for 2005 EPS that have increased from $1.17 to $1.59 since April
2004. The Company did not need to do a deal and certainly did not need to do
a deal at such a modest premium. Shareholders have a perfectly good
alternative: keeping the company independent. No one has suggested
Third, opposing this transaction provides shareholders with the option to
seek appraisal rights in Delaware Court after the closing. Essentially, if
an investor sends a notice to the Company of an intent to exercise appraisal
rights (and then votes against the deal or does not vote) and the deal is
nevertheless approved, the investor has a 60-day option to have the Court
decide on fair value. While it is hard to know what the Court will do, it
seems very unlikely that the Court will conclude the stock is worth less
than the trading value before the deal was announced; with such a small
premium at risk, the 60-day option (and the opportunity to get a higher
value from the Court) may be a better option.
In short, we believe this transaction is not compelling in any way. It is
the product, in our view, of a flawed process. Its small premium certainly
does not warrant investor excitement and we strongly believe that the
Company standing alone or pursuing some other deal will likely yield a
better financial outcome for investors. By our math, this Company is worth
between $21 and $24 in the merger market today.
For these reasons, we recommend that shareholders vote AGAINST
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