A major shareholder of Providian Financial took the unusual step yesterday of publicly opposing its acquisition by Washington Mutual, saying...

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A major shareholder of Providian Financial took the unusual step yesterday of publicly opposing its acquisition by Washington Mutual, saying the credit-card company could fetch a better price.

But analysts continued to support the proposed merger, saying WaMu is paying a fair price for a company that has had problems with credit quality in recent years.

Putnam Investments and the board of trustees of Putnam Mutual Funds said they plan to vote against the deal with the roughly 7.5 percent of Providian’s shares that they control.

“We don’t have anything against Washington Mutual as a company,” said David King, a senior portfolio manager at Putnam. “We think it could be a good merger partner, but at this price, all the value of the deal goes to their shareholders.”

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He said Providian shares would perform better if the company remained independent or if there were bidding from more potential acquisition partners.

As evidence that Providian could do better, King pointed to its improving financial performance and to the planned acquisition of credit-card giant MBNA by Bank of America, which was announced after WaMu said it would buy Providian. If Providian went back on the market in what Putnam considers a consolidating industry, the money management firm believes it could command a higher price.

Bank of America is paying a high premium for MBNA — about 30 percent above the card company’s closing price the day before its deal was announced. That compares to WaM’s 4.2 percent premium for Providian.

Providian shares dropped 33 cents, or 1.8 percent, when the deal was announced in early June, an indication that shareholders were underwhelmed by the takeover.

Still, Wall Street analysts disagree with Putnam that Providian shareholders are getting a bad deal.

“We thought Providian was overvalued going in,” said Moshe Orenbuch, a specialty finance analyst at Credit Suisse First Boston. “It would be risky to vote against it. Providian’s management knows its earnings prospects better than any individual shareholder.”

In a June research report, Keefe, Bruyette & Woods analyst Stephen Schulz said the reaction from Providian investors appeared to be “mild disappointment in terms of pricing.”

But, Schulz wrote, Providian management seems to have been searching for potential buyers for some time and took the best offer it received.

Joel Gomberg, a banking analyst at William Blair & Co., said that compared to other transactions, the Providian deal is “in the ball park.”

MBNA garnered a higher premium partly because it has a higher-quality portfolio and business, he said. It also benefited because its buyer, Bank of America, is already in the credit-card business and can gain more synergies through the acquisition than a company like WaMu, which is just entering the market.

Providian spokesman Alan Elias said yesterday that the company respects Putnam’s opinion but continues to believe that the proposed merger with WaMu is priced fairly and will benefit its shareholders.

“We are continuing our integration efforts and still expect the transaction to close in the fourth quarter,” Elias said.

Providian shareholders are scheduled to vote on the acquisition at a special meeting on Aug. 31. WaMu shareholders will not vote on the deal, because it does not represent a large enough portion of the company’s stock to warrant a vote.

There is a $225 million break-up fee if Providian walks away from the acquisition under some circumstances. But that fee does not apply if the deal falls apart because Providian shareholders reject it, as long as there is no other suitor, according to Washington Mutual spokesman Alan Gulick.

Putnam is Providian’s second-largest shareholder, according to the company’s most recent proxy statement. The largest shareholder, with about 9.4 percent of the stock, is Legg Mason Funds Management and related companies, which declined to comment on the matter yesterday.

Providian ran into problems with credit quality a few years ago. It had gotten into the subprime market, where lenders charge higher interest and fees to people with spotty credit records. The strategy backfired, leading to steep profit declines.

But the San Francisco company appears to have gotten back on track, and last month reported a second-quarter profit of $225.3 million, up from $49.9 million a year earlier.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com