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




by Yvette Kantrow
Updated 01:07 PM EST, Sep-2-2005

War, like politics, produces strange bedfellows. But it can also make for even stranger enemies. Take the recent spat between The New York Times' Gretchen Morgenson and proxy advisory firm Institutional Shareholder Services. Morgenson, who spent the better part of the summer waging a journalistic jihad against mergers, recently penned a stinging attack on ISS, accusing the firm of being — what else? — conflicted in its roles as an adviser to shareholders as well as to corporate issuers.

Specifically, Morgenson was peeved at ISS for coming out in favor of Providian Financial Corp.'s takeover by Washington Mutual Inc. for a price she has deemed inadequate. The only explanation for ISS' pro-deal position, she reasons in an Aug. 21 column, is that ISS is caught in a "two-master morass" of serving both issuers and investors — a situation she suggests resembles the Wall Street analyst conflicts that helped to fuel the bubble.

ISS struck back with its own attack, posting on its Web site a four-page rebuttal to Morgenson's Sunday piece, which was flippantly headlined "And They Call This Advice"? The missive, addressed to Times publisher Arthur Sulzberger Jr. and signed by ISS chief executive John Connolly, was filled with vitriol for the Pulitzer Prize-winning Morgenson, whom ISS accused of possessing "blatant disregard for factual and responsible reporting." Reuters wrote a story on ISS' letter, which caught the attention of the blogosphere, and before long, the spat made its way onto such mediacentric Web sites as Gawker and Romenesko. And while the details of the battle are delicious in and of themselves — "When the truth does not fit within her accusatory agenda, [Morgenson] summarily dismisses the facts and proceeds to put forward her own misguided and, we believe, ill-informed opinion of the matter," ISS snarls — what's more interesting here is what they say about today's obsession with shareholder rights. Morgenson and ISS (and the Times, for that matter) are allegedly on the same side, that of the shareholder, or little guy, who in reality is represented by big institutional investors. But Morgenson's crusade to protect the little guy has morphed into a campaign against an amorphous concept of "Wall Street" and all it entails, with a specific focus of late on mergers. By taking the position that Wall Street is always bad and always out to fleece investors for its own benefit — complexities be damned — Morgenson, at least in this instance, turned on one of her own. That's always a bad sign on the battlefield.

As ISS points out in its letter, Morgenson in the past has written favorably about the firm when it has come out against particular mergers. (As recently as June, Morgenson cited ISS' recommendation against Yucaipa Cos.' deal for Pathmark Stores Inc. as evidence of that transaction's folly and liberally quoted ISS special counsel Pat McGurn to help make her case.) "However, we seem to incur her wrath and our integrity is questioned when we look favorably upon a particular transaction," the letter noted. Indeed, Morgenson says in her column that two other proxy advisory services, Glass Lewis & Co. and Egan-Jones Ratings Co., came out against the Provident-WaMu deal. "Both are independent firms that make money solely from institutional investors who buy their advisory or research reports," she coos approvingly. "Neither accepts fees from issuers of shares or bonds, which keeps them out of the morass of serving two masters."

So does that mean they are right and ISS is wrong? For Morgenson, it clearly does, which reminds us of the early post-bubble coverage of the analyst mess when the media followed this George Costanza-like rule: bullish analysts are conflicted and wrong; so bearish analysts must be independent and right. A similar phenomenon is at work here, where mergers are seen as essentially bad, especially if the executives involved in them are going to make a bundle. And if a company like ISS doesn't see that — it is, after all, the most powerful of the proxy advisers — well, it must have a conflict.

In her piece, Morgenson failed to mention that another advisory service, Proxy Governance Inc., also supported the WaMu deal, making the advisory service vote two against and two in favor, not the two to one she reported. Morgenson told Reuters she only learned about Proxy Governance's support of the deal after her column appeared.

Whatever. But the split is important not just because it evens the for-and-against score on the deal, but because it speaks to the complexity of evaluating this transaction. As Dow Jones Newswires put it in an Aug. 23 story on the proxy adviser split, for Providian shareholders plugged into these firms, "there's no clear answers when it comes to how they should vote on the company's proposed sale to Washington Mutual Inc." Indeed, even ISS and Proxy Governance endorsed the deal with reservations, with ISS noting that the price might be at the low end of a reasonable valuation, though adding that it's unclear Providian has enough earnings potential to fetch any more. At the end of the day, evaluating this merger is a complex business; it's not black and white and it's not about bias. But in Morgenson's anti-merger jihad, you're either with her or against her. There's no room for complexity or even a hint of gray.

The resurrection of Henry Blodget continues apace. First there were the mea-culpa interviews; then there was the writing gig for; next came a cover story assignment for the glossy folks over at New York magazine. But Blodget's craftily engineered rehabilitation reached a nadir last week when the musings of the deposed prince of the Internet graced journalistic real estate no less valuable than the op-ed page of The New York Times. Blodget's topic, not surprisingly, was bubbles, or in his piece's vocabulary, "booms." His take on them: Hey, they happen.

Talk about glib. Like the research reports that made him famous, and later, infamous, Blodget's piece is entertaining, accessible and smooth. But like those reports, it's also thin on real analysis and more than just a little self-serving. His central point is that when it comes to industry and the stock market, predicting the future is hard, "especially when reasonable people disagree about when a bust might come and how severe it might be." We'll never know, he says, which ideas will work and which won't.

Well, no kidding. This column has made that point countless times itself, sometimes even in defense of Blodget and his cohorts. But for a former analyst who literally made millions issuing what ultimately turned out to be wrong — and not to mention, conflicted — predictions about the Internet, it seems a bit too easy to simply wave them off with what amounts to a lighthearted "oh well."

Still, you have to hand it to ol' Henry for a making a real go at the journalism thing. And if it doesn't work out, no doubt he can always find a job in PR.

Yvette Kantrow is executive editor of The Deal.


©Copyright 2005, The Deal, LLC.




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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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