Putnam to oppose Providian-Washington Mutual deal

NEW YORK (Reuters) - The $6.45 billion sale of Providian Financial Corp. to Washington Mutual Inc. may be in jeopardy, as one of Providian's biggest shareholders says it will oppose the deal on the grounds because it feels the credit card issuer is worth a lot more.

Putnam Investments, which controls 7.5 percent of Providian's (PVN.N: Quote, Profile, Research) outstanding shares, on Monday said credit card companies are increasingly scarce and can fetch higher prices. It was a rare public display of shareholder activism by the big Boston-based asset management firm.

"We think Providian is worth more than the consideration WaMu (Washington Mutual) is offering," Putnam money manager David King said in an interview. "If the company were put into a full-blown auction, the price would be substantially higher."

Washington Mutual (WM.N: Quote, Profile, Research), the largest U.S. savings and loan, received a tepid response June 6 when it offered a 4 percent premium for Providian. That deal looked like an even bigger bargain on June 30 when Bank of America Corp. (BAC.N: Quote, Profile, Research) agreed to pay $35 billion for MBNA Corp. (KRB.N: Quote, Profile, Research), a 31 percent premium.

Seattle-based Washington Mutual, in response, said its offer was equitable and the deal would not be derailed by Putnam's opposition.

"The consideration is fair and the transaction is in the best interests of both Providian and Washington Mutual shareholders," said spokesman Allan Gulick. Washington Mutual continues to make integration plans and expects the transaction to close in the fourth quarter, he said.

San Francisco-based Providian did not return calls seeking comment.

Providian shareholders are scheduled to meet on Aug. 31 to vote on the merger, which was first announced on June 6.

The market's early response to Putnam's statement was muted. Providian shares were up 10 cents to $19.00 Monday afternoon on the New York Stock Exchange, while Washington Mutual shares were unchanged at $42.48.

"I would say the market is not taking it too, too seriously," said Peter Lobravico, head of merger arbitrage trading at Wall St. Access, a New York brokerage.

He said the deal is not under any immediate threat.

"There were not any shareholders complaining on the conference call," Lobravico said. "This is the first we are hearing of any shareholders complaining."

TOO CHEAP?

Some analysts argue Providian's shares are worth more, especially as consolidation culls the ranks of stand-alone credit card companies. Providian earnings, meanwhile, have been on the upswing after a period of financial struggle.

"I was initially disappointed with the price Providian garnered in early June," said Christopher Brendler, an analyst for Legg Mason. "Subsequent to the MBNA transaction, it seemed even more glaring that the deal price was on the low side."

Brendler said Providian stock could fetch "low-20s" a share, based on 10 to 11 times his estimated 2006 earnings of about $2 a share. Providian currently trades for 10.5 times the $1.79 a share consensus compiled by Reuters Estimates.

Washington Mutual's cash and stock offer was worth $18.71 per share at the time the merger was announced.

MBNA also trades for about 11 times next year's earnings.

"(Washington Mutual) bought Providian for a fair price," said Anton Schutz, manager of the Burnham Financial Services Fund and holder of Washington Mutual stock. "Providian shareholders are getting a relatively cheap stock in return and they may have some upside."

Also, MBNA is a far bigger credit card company with a long history of success, although its shares recently slipped amid concerns about slowing growth. Bank of America stepped in with its offer days after MBNA failed to strike a deal with Wachovia Corp. (WB.N: Quote, Profile, Research).

Looking ahead, Washington Mutual's deal could still face a battle if other big money managers followed Putnam's lead. Providian is where The top five shareholders of Providian control roughly a third of the outstanding stock.

Putnam is not soliciting other shareholders, King said, but he added: "We expect all of them to analyze the deal very carefully on their own." (Additional reporting by Mark McSherry in New York and James Kelleher in Chicago)

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.