By James B. Kelleher

CHICAGO, Aug 29 (Reuters) - When Washington Mutual Inc. (WM.N: Quote, Profile, Research) offered to buy Providian Financial Corp. (PVN.N: Quote, Profile, Research) for $6.45 billion in early June, it kicked off what turned out to be a summer of consolidation in the U.S. credit-card industry.

It also kicked off a debate that has demonstrated -- in more ways than one -- the extent to which dealmaking remains an art, not a science.

At the heart of the debate is a seemingly simple question: Is Washington Mutual's $18.71 a share offer price for Providian fair?

The answer is now in the hands of Providian shareholders, who will vote on the merger on Wednesday.

The trouble is, even the investor advisory firms that analyze deals for a living can't agree whether shareholders should approve or reject it.

That's not surprising, says Robert Bruner, dean of the Darden School of Business at the University of Virginia. Intrinsic worth, like beauty, is often in the eye of the beholder.

"You can't see true value; you can only estimate it," says Bruner, whose research on corporate mergers and acquisitions is distilled in his latest book: "Deals from Hell."

Because different analysts use different tools to make their estimates, sometimes a deal that doesn't measure up by one yardstick looks considerably better by another.

In the case of Providian, opponents of the deal seem to be focused largely on one thing: Washington Mutual's offer price expressed as a premium to Providian's share price.

The savings and loan's offer represented a 4.2 percent premium to the credit-card company's closing stock price the day before the deal was announced.

Almost as soon as the terms were announced, some Providian holders were grumbling about the paltry premium. But the grumblings grew louder when, 3-1/2 weeks later, Bank of America Corp. (BAC.N: Quote, Profile, Research) announced it would buy MBNA Corp. (KRB.N: Quote, Profile, Research) for $35 billion, or about $27.50 a share -- a 30 percent premium to its most recent closing price prior to the announcement.

Sean Egan, a principal at Egan-Jones Proxy Service, an investor advisory service that has urged Providian shareholders to reject the deal, puts the critics' case bluntly:

"The marketplace has accepted the premium over stock price as being a fairly good indicator," Egan says. "And by that measure, the amount being paid for Providian is skimpy."

Indeed, shares of Providian fell in the days immediately after the deal was announced because, as Institutional Shareholder Services put it, "the market had anticipated a higher acquisition premium."

The shares have since recovered and closed Monday at $18.47.

A DIFFERENT VIEW

Supporters of the deal, on the other hand, are focused on something else altogether: Washington Mutual's offer price as a premium to Providian's receivables.

"With credit card companies," says Gene Capello, a managing director of policy at Proxy Governance, one of two investor service firms urging investors to support the deal. "You have to give receivables a bigger spotlight because that is what their business is all about."

In the case of Providian, Washington Mutual's price represented a 17.6 percent premium to receivables. In the case of MBNA, Bank of America's offer price represented a 22 percent premium to receivables.

That's still a sizable gap, to be sure, though smaller than the gap between share price premiums in the two deals.

Proxy Governance and Institutional Shareholder Service, the other investor advisory service recommending investors approve the deal, say the gap is warranted, however, because not all receivables are equal. Simply put, MBNA not only has more customers than Providian, it also has better customers -- customers who are more likely to pay on time and less likely to default.

But though the analysts parsing the Providian deal used different tools to measure fair value, they all relied on their noses when assessing the post-deal change-in-control payments that Providian managers will enjoy under the deal -- even though those managers won't lose their jobs and will get new employment and options contracts at Washington Mutual.

ISS, Proxy Governance, Glass Lewis, and Egan-Jones all agree that the payouts create at least the appearance of a conflict of interest. And they wonder how the executives and bankers who put the deal together could have been so insensitive to those impressions.

"(It) gives the management team incentive structures different from those of shareholders," says Greg Taxin, the president of Glass Lewis & Co. "It makes doing a transaction more attractive to the executives than doing a transaction might be to a shareholder."