Monday, June 06, 2005

Hit #46

Washington Mutual is buying Providian Financial (PVN) for $6.4 billion is a mostly-stock transaction, valuing Providian shares at $18.71/share. This is a small premium over the recent close, but represents a premium of 52% over my average cost of $12.3/share.

While Washington Mutual did good not to overpay, this deal essentially eliminates it as a takeover target in the near future. One party that may still be interested in buying this new combine is Barclays, which at various times in the past was rumored to be interested in buying Providian as well as Washington Mutual. Washington Mutual is also admitting that the mortgage/banking business is not growing as expected anymore, but that the admission is a positive point.

I started buying Providian around $3, some 2 years ago, when they got into trouble with their consumer lending. Most of that position was sold at prices in the $7-$9 range. I bought again, a few months later, in the $10-$12 range when it looked like their recovery was for real and they could soon become a target. Providian has been tightening its credit evaluation (I known by experience!) of late, and someone did take notice. If I remember right, one of the biggest bets on Providian was made by Bill Miller - another winner.

Previous hit - Titan (#45)


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