Providian Financial Corp.'s second-largest shareholder said Monday that it would oppose the sale of the San Francisco-based credit card company to Washington Mutual Inc., saying the $6.5-billion price was too cheap.
Putnam Investments, the Boston mutual fund company, said it would vote its 7.5% stake in Providian against the sale at a special shareholder meeting Aug. 31. It called the offer "well below" the fair value of Providian stock.
Putnam's decision to oppose the deal was influenced by Bank of America Corp.'s June 30 agreement to buy MBNA Corp., a larger and healthier credit card company, for $35 billion. Washington Mutual's offer represented a 4% premium over Providian's market value at the time of the offer; MBNA shareholders were offered a 31% premium.
Putnam portfolio manager David King wouldn't specify an acceptable price. In an interview, he said the preferred outcome for shareholders would be for Providian, recovering strongly from a near-meltdown four years ago, to remain in business as one of the last of the stand-alone card companies.
"Or if it plays out that the toothpaste can't be put back in the tube," King said, "then we think an open auction would bring a higher price than this privately negotiated sale."
Providian and Washington Mutual said they would continue to work on plans to combine the companies and expected the deal to be completed early in the fourth quarter this year.
"While we respect Putnam's opinion, Providian continues to believe that the proposed merger with Washington Mutual is priced fairly and will be beneficial for our shareholders," Providian Senior Vice President Alan Elias said.
The announcement had little effect on the companies' stocks: Providian rose 8 cents to $18.98, and Washington Mutual rose 2 cents to $42.50.
Seattle-based Washington Mutual, the nation's largest savings and loan, agreed June 6 to acquire Providian in a cash-and-stock transaction. WaMu, as the company is known, said the deal would help diversify its operations and allow Providian to market cards to the thrift's millions of customers.
King said Providian's latest financial report, showing continued strong earnings and progress in cleaning up delinquent loans, was the biggest factor in Putnam's decision.
"We believe this company would be worth significantly more than this privately negotiated price at an open auction," King said, adding that 50 to 100 financial services firms would have the resources to bid for Providian.
