Putnam Investments LLC, one of the nation's largest money managers, said Monday it will oppose Washington Mutual Inc.'s $6.45 billion bid to acquire credit card issuer Providian Financial Corp. because the deal price is too low.
The Boston-based mutual fund giant, one of Providian's largest shareholders with a 7.5 percent stake, slammed the offer as being "well below fair market value" in light of a recent consolidation spree within the credit card industry. The decision by Putnam to speak out against the deal was seen as unusual for an asset management firm, which are not known for being shareholder activists.
Washington Mutual and Providian defended the proposed deal.
Providian is one of the largest independent credit card issuers in the nation, and part of a dwindling breed as rivals have been snapped up by large financial institutions in recent years. The most recent example of industry consolidation was Bank of America Corp.'s June 30th announcement that it would acquire MBNA Corp. for $35 billion.
"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," Putnam said in a statement. "By accepting a price well below the fair value of Providian common stock, Putnam believes the merger would transfer significant value to Washington Mutual's existing shareholders at the direct expense of Providian's shareholders."
Putnam points out that Bank of America's offer represents a 31 percent premium on MBNA's value. Meanwhile, Seattle-based WaMu offered just a 4 percent premium to Providian's market value at the time its deal was unveiled in early June.
Providian has scheduled a shareholders meeting on Aug. 31 to vote on the proposed merger, which it hopes to close sometime in the fourth quarter. If approved, Providian would add its 9.4 million credit card accounts to WaMu's 9.2 million debit cards and 11.7 million retail and mortgage customers.
"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 spokesman Alan Elias said.
Washington Mutual spokesman Alan Gulick said both companies remain focused on merging their operations and expect the deal to close early in the fourth quarter.
Investors largely ignored Putnam's statement _ the first real wrench thrown into WaMu's effort to bolster its credit card operations. Shares of San Francisco-based Providian rose 8 cents to close at $18.98 on the New York Stock Exchange, and are up 5.5 percent since the deal was first announced. Washington Mutual shares, which have risen 2.2 percent since early June, rose 2 cents to close at $42.50 on the NYSE.
The acquisitions of both Providian and MBNA come at a time where U.S. banks are attempting to pump up higher yield businesses, such as credit cards, as once-skyrocketing mortgage operations suffer from flattening yields. However, the similarities between both acquisitions might end there, analysts say.
"These are very different deals, and I don't think WaMu is getting Providian for a steal," said Hoefer & Arnett analyst Richard X. Bove. "If you look at just the numbers, then Putnam has a good case. But, Bank of America is getting one of the creators of the industry, a real innovator. Providian, on the other hand, is going after a more subprime customer."
The price MBNA shareholders are getting compared with Providian investors somewhat reflects the strength of the Wilmingon, Del.-based credit card issuer's high-end customer base. MBNA operates a popular "affinity" program _ which ties cards to everything from universities to baseball teams.
Bove said Putnam's stance won't be enough to scuttle WaMu's play for Providian, and that there was only a slight possibility a "white knight" bid would surface from a rival bank. The mutual fund company, which is owned by insurance broker Marsh & McLennan Cos., would need to get support from other large shareholders.
Providian's top institutional holders includes Legg Mason Capital Management, Davis Selected Advisers and hedge fund Citadel Investment Group, according to Thomson Financial. Combined, the four firms control about 30 percent of Providian.