September 2, 2005
San Francisco, CA -- After much speculation
in the media, shareholders of Providian Financial approved its merger with
Washington Mutual (WaMu) on Wednesday. The deal was the subject of much
debate with one of Providian's biggest shareholders publicly opposing the
merger and the company's proxy firm, Institutional Shareholder Services (ISS),
being criticized in the media.
The media frenzy tipped off when Putnam
Investments, one of Providian's major holders with 7.5 percent of shares
outstanding, went public with its stance against the deal. In a very
unusual move, Putnam published a press release saying the bid price was
too low. 'In a consolidating industry and in light of the recently
announced Bank of America/MBNA transaction, mono-line credit card
companies such as Providian represent an increasingly scarce asset that
should command a higher price,' wrote Putnam on August 1 about WaMu's
Jack Carsky, senior VP of IR at Providian,
was surprised by Putnam's decision to go public with its view. 'When
Putnam put out that press release that moved everything up a notch and
that was almost unprecedented,' he says. 'I can't think of a case Putnam
has ever done that; the CEO, the CFO and myself spoke to Putnam's
portfolio mangers and their analysts in a couple of occasions on June 6
[when the offer was first announced] and a couple of days later.'
Carsky notes that communication with Putnam
was constant, before and after the press release came out. 'The lines of
communications were very good and we understood their point,' he says. 'We
respected their point, but we still felt that based on everything we knew
that we were getting the best offer for our shareholders.'
Soon after Putnam's announcement the media
criticized ISS' role in the deal. A New York Times' column by
Gretchen Morgenson questioned ISS' integrity noting it was giving advice
to both management and shareholders, posing a potential conflict of
interest, and also that in voting in favor of the current bid,
shareholders would give up their right to an independent appraisal of the
deal. Morgenson also mentioned ISS' refusal to reveal whether any of its
clients were key players in the deal. ISS then accused Morgenson of
Proxy firms were divided on this deal. ISS
and Proxy Governance supported the offer while Glass & Lewis and
Egan-Jones weren't in favor of the deal's terms.
'While we expected some push back because
Putnam voiced their displeasure so loudly on the first day of the
announcement and then subsequently in that press release, we didn't expect
to see a pile on by the press and the proxy governance services like
this,' notes Carsky. 'At that point we were just kind of standing on the
side lines looking at all these people taking pot shots at each other
wondering what we did wrong in the middle of it all.'
As for ISS, Carsky defends Providian's
choice in taking advice from the proxy firm. 'Whether people deem them to
be objective or not, ISS gives you the opportunity to essentially speak
your case, and they take their time to understand management,' he says.
'To Glass Lewis' fault they don't do that, they just take whatever is
contained in the proxy - they don't talk you.'
At the end of the day, Providian's merger
was approved with 83 percent of total voting shares approving the merger
(or 67 percent of the total outstanding shares).
There is a lesson learned here, says Carsky.
'Never underestimate. We went into this thinking there shouldn't be much
of a problem especially after we got the ISS blessing,' he says. 'You can
ever underestimate the possibility of other entities making their voices
heard for whatever reason.'