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



Providian Shareholders Approve Sale
Wednesday August 31, 5:26 pm ET
By Michael Liedtke, AP Business Writer

Providian Shareholders Approve Sale to Washington Mutual

SAN FRANCISCO (AP) -- Providian Financial Corp.'s shareholders on Wednesday accepted Washington Mutual Inc.'s $6.5 billion takeover bid, brushing aside concerns that one of the nation's last independent credit-card lenders could have been sold for a higher price.

A total of 197.5 million Providian shares, or 67 percent of the common stock outstanding, supported the deal, clearing the way for Washington Mutual to complete the acquisition Oct. 1.

San Francisco-based Providian announced the vote during an uneventful 10-minute special meeting that ended several months of debate about whether Seattle-based Washington Mutual -- the nation's largest savings and loan -- is paying enough to buy a credit-card company that will help it diversify beyond home mortgages.

Investors began to express their misgivings about the sale price almost as soon as Washington Mutual first unveiled its cash-and-stock bid of $18.71 per share. That was just 4 percent above Providian Financial's stock price before the deal was announced in early June, an unusually low premium.

After slipping after it first struck the deal, Washington Mutual's shares have bounced back. The company's shares rose 44 cents Wednesday to close at $41.58 Wednesday on the New York Stock Exchange, where Providian's shares rose 24 cents to close at $18.60.

After nearly failing in late 2001 amid an avalanche of loan problems, Providian bounced back under a new management team that boosted the company's profits by cleaning up the credit-card portfolio and cutting costs in a streamlining that shed about 10,000 workers.

Providian now employs 3,200 workers, most of whom are expected to be retained. The credit-card lender has 9.5 million accountholders with $18.6 billion in outstanding loans through June.

The complaints about Providian's price amplified earlier this summer after Bank of America Corp. agreed to buy MBNA Corp. for $35 billion -- a 31 percent premium. Some analysts argue that deal isn't an apples-to-apples comparison to Washington Mutual's bid for Providian because MBNA's loan portfolio is less risky.

Nevertheless, Putnam Investments LLC, one of Providian's largest shareholders with a 7.5 percent stake, took the unusual step of publicly opposing the Washington Mutual bid, hoping to force Providian's board to go back to the negotiating table or solicit other offers.

Two investment advisory firms also advised Providian's shareholders to reject the Washington Mutual bid because of the financial terms.

Glass Lewis & Co., the most strident critic, argued Providian might fetch as much as $24 per share, nearly $2 billion above Washington Mutual's offer, if the board were more effective negotiators.

But two other advisory firms favored the deal, and Providian's board never wavered from its position that it had extracted a fair price from Washington Mutual.

"I can honestly say there is nothing we left on the table," Providian Chairman Joseph Saunders said during an interview after Wednesday's meeting. Saunders said Providian held discussions with a significant number of prospective bidders in the United States and abroad before accepting Washington Mutual's offer.

Greg Taxin, the chief executive for Glass Lewis, remains convinced that Providian's shareholders are getting shortchanged. He argued the deal won approval because many of Providian's largest shareholders -- mostly mutual funds and pension funds -- own even larger stakes in Washington Mutual, giving them a financial incentive to accept the lowball offer.

"Those shareholders wanted it to go through because they realized Washington Mutual is getting a great bargain and they will benefit from the unfair price," Taxin said Wednesday.

The list of major shareholders with stakes in both Providian and Washington Mutual includes the Vanguard Group, Legg Mason Capital Management, Northern Trust Global Investments, Franklin Portfolio Associates, Barclays Global Investors, New York State Common Retirement Fund and the California Public Employees Retirement System.

Saunders, who lifted Providian's shares from a low of $2 reached shortly before his November 2001 hiring as CEO, will be one of the big winners in the Washington Mutual takeover. He is line for a $9 million cash payment when the deal closes and will continue to run Providian under a new three-year contract that could pay him another $9.6 million in salary and bonuses, according to documents filed with the Securities and Exchange Commission.

After the deal is completed, Providian's board and top executives, including Saunders, also will vest in a total of 3.5 million stock options and shares of restricted stock, according to Glass Lewis' analysis, setting the stage for another big windfall.

"We took a significant risk to go to work for Providian and we did our job," Saunders said of the management team that turned around Providian.




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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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