Washington Mutual Buys Providian in a $6.45 billion Deal
Washington Mutual announced that it is has entered an agreement to buy Providian Financial in a stock and cash transaction totaling nearly $6.45 billion.
According to Washington Mutual, Providian will become the company’s fourth major business unit and will continue to operate out of its current headquarters in San Francisco. Washington Mutual also said it will keep Providian’s management team and infrastructure. This should make for a smooth integration, and a quick and easy transition.
“Today’s transaction enhances Washington Mutual’s consumer banking growth while strengthening our leadership position in the middle-market customer segment,” said Washington Mutual chairman and CEO Kerry Killinger. “Providian is a highly profitable business with solid credit quality. Its focus on middle market consumers makes Providian a natural fit for our business and a winning combination for both companies’ customers.”
“This combination also helps to further diversify our balance sheet and earnings by adding attractive, high-yielding credit card assets, while improving our net interest margin and adding stable fee income,” added Killinger.
The transaction is expected to be accretive within a year on both a GAAP and cash basis.
According to a press release, Providian shareholders will receive consideration based on a fixed exchange ratio of .45 Washington Mutual common shares for each Providian share.
The merger consideration will be paid 89% in stock and 11 percent in cash. The stock consideration will be determined by multiplying the fixed .45 exchange ratio by 0.89, and the cash consideration will be determined by multiplying the .45 ratio by the product of 0.11 and the average closing stock price of Washington Mutual for the 10 trading days immediately preceding completion of the merger. Based on the closing price of Washington Mutual’s stock on June 3, 2005, the implied per share purchase price is $18.71.
Providian’s chairman and CEO Joseph Saunders will continue to run the credit card business and will report directly to Steve Rotella, Washington Mutual’s president and chief operating officer. Other members of Providian senior management team will also be joining Washington Mutual.
“Providian’s management has successfully developed innovative products and services, while providing superior customer support, strong underwriting and efficient operations,” said Killinger. “Retaining Providian’s leadership team helps ensure strong credit management and continuity of marketing expertise in the credit card business, while allowing Washington Mutual’s management to remain focused on the priorities we’ve set forth for the entire company. We are all committed to achieving our long-term targets, producing top-tier performance in our industry and delivering superior long-term shareholder returns.”
Saunders said, “This transaction provides Providian shareholders financially attractive terms while allowing us to take the card business to the next level. Washington Mutual’s size and resources will allow us to operate with a lower cost structure and greater efficiency than we could on our own. The compelling combination also enables us to leverage the strength of Washington Mutual’s nationally recognized brand and utilize its more than 2,000 retail stores as a new growth channel.
“Our success as an independent company is in large part due to the dedication of our employees, whose efforts have made this next step forward possible,” added Saunders. “We’re pleased that Providian and our employees will be sharing our future with Washington Mutual, a company that shares our vision and values.”
The companies noted that Providian credit card customers should expect business as usual. Their accounts, policies and payment procedures remain unchanged.
The acquisition is expected to be completed in the fourth quarter of this year. It is still subject to approval of Providian shareholders and regulatory approvals.