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Tuesday, August 23, 2005

NYT on Providian Financial (PVN) Acquisition

And They Call This Advice?
The New York Times
Gretchen Morgenson
Published: August 21, 2005
WILL shareholders of the Providian Financial Corporation, one of the nation's biggest credit card issuers, approve their company's merger with Washington Mutual?

Owners of Providian will vote on the proposed deal on Aug. 31. Under its terms, they will receive just under $19 a share in cash and Washington Mutual stock. That price represents a modest premium of 4.2 percent over the price of Providian just before the merger announcement.

David L. King, a portfolio manager at Putnam Investments, has said he will vote against the merger. The funds own 7.5 percent of Providian's shares. Officials at Providian have said that the deal is fair.

In its report, Glass Lewis said it believed that Providian was worth $21 to $24 a share. It said the company's business was performing well and could easily remain independent.
Providian Financial Corporation (PVN) is currently trading at $18.74, slightly below the possible take-over price.

Read further:
The New York Times: And They Call This Advice? (free subscription required)


Anonymous John Richardson said...

Gretchen Morgensen's comments regarding ISS's analysis of the PVN WaMu deal are disingenuous at best. ISS's conflicts are old news and have no bearing on voting for or against this deal.

Of primary concern here is why is Wall Street so concerned about the analysis put forth by ISS and Glass Lewis? I suspect that these analysts want to shift the blame for their "investment" decision to outsiders - the corporate governance experts. Galss Lewis obvoiusly wants to make a name for itself here by taking a position contrary to ISS and raising its profile.

However, voting for or against this merger is an investment decision, not a corporate governance one.

Is this a good deal? This is the question, not whether ISS has real or perceived conflicts of interest. If Wall Street analysts cannot factor the supposed bias of ISS's analysis into their own decision making on this subject, they are in the wrong business.

On the question of whether this is a good deal or not, comparing the takeover premium of this deal with the MBNA BoA deal doesn't work. Rumors started to pop up in the Spring of 2003 that PVN was on the block. The stock price started to climb from $5-$6 in March of that year to $10 in May of that year. The share price is now $18 and change. Comparing the current price to the higher $10 figure, the squealing of Putnam and Glass Lewis starts to look like spilled milk.

What are the motives of Putnam here? They aren't saying bu their actions speak loudly. Obviously, they want a higher offer from Washington Mutual. Using the time worn approach of attacking ISS as the conflicted analyst reminds me of the not so long ago game played by both sides in the ISS/HP-Compaq merger. By drubbing ISS (whether deservedly or not), Wall Street analysts avoided responsibility for a really lousy decision to support that merger.

I suppose that a case could be made for Ms. Morgensen's conflicts of interest - her contacts on Wall Street that she must maintain to do her job, who then feed her the ISS story as a way to raise the stakes in the PVN deal. But what's the point? The real story here is why the analysts don't have the guts to stand tall and take a position on this deal.

8/24/2005 06:28:00 AM  
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