A merger Monday. Very little to be made on this deal.
Washington Mutual to buy Providian
Financial services firm to pay $6.45 billion in cash, stock
By Sarah Turner & David Weidner, MarketWatch
Last Update: 11:03 AM ET June 6, 2005
NEW YORK (MarketWatch) -- Washington Mutual Inc. said Monday it has agreed to buy credit-card issuer Providian Financial Inc. for about $6.45 billion in cash and stock.
The move is aimed at enhancing consumer-banking growth and strengthening its middle-market customer position, Seattle-based Washington Mutual said.
The purchase price is to be paid 89% in stock and 11% in cash. Based on the Friday closing price of Washington Mutual shares (WM: news, chart, profile) , the thrift will pay a 4.2% premium for Providian, and a 11.7% premium to the 30-day average, or about $18.71 a share.
The purchase of Providian (PVN: news, chart, profile) is expected to boost Washington Mutual's overall earnings within a year; the companies are targeting a completion date in the fourth quarter of this year.
Washington Mutual shares were down 2.3% to $40.63 in recent action, while Providian shares had slipped 24 cents to $17.72.
The deal is the culmination of nearly two years of on-again, off-again talks that broke off in mid-2004 when both companies ran into problems, according to a person familiar with the talks.
In July, WaMu announced layoffs and a restructuring to gird against a shift in interest rates. The company reported earnings that fell short of analyst estimates for the second quarter of last year.
WaMu approached Providian in April. For Providian, management was concerned about continuing as a mono-line credit card company. For Washington Mutual, executives sought to round out their retail product offerings to keep pace with competitors.
Kerry Killinger, chairman and chief executive officer of Washington Mutual, said in a statement that the purchase would also help to diversify the company's balance sheet and earnings by adding high-yielding credit-card assets. It's also expected to improve net interest margin and add stable fee income.
Providian would become Washington's fourth major business unit and would continue to operate out of its San Francisco headquarters. The management team and infrastructure would also be retained, the company said.
Joseph Saunders, Providian's chairman and top executive, is to continue to run the credit-card business and report directly to Steve Rotella, Washington Mutual's chief operating officer.
Under terms of the deal, Providian shareholders are to receive 0.45 shares of Washington Mutual stock plus cash.
The deal marks something of a turnaround for Providian, which saw its stock trade as low as $15.29 a share in December and as low as $9.26 in 2003 as losses drove the company to target middle-income Americans rather than the so-called sub-prime customers it traditionally served.
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