WaMu Seals Providian Deal, Boosting Cross-Sell Potential

Washington Mutual Inc. here has completed its acquisition of credit-card provider Providian Financial in a deal valued at $6.1 billion. For each share of Providian held, the stockholders of that company received 0.4005 shares of Washington Mutual common stock and $2 in cash.

On Oct. 3, the day the deal closed, WaMu closed at $39.12. During the next four days, the stock began slipping, trading at one point as low as $37.76, before rebounding to close at $38.25 on Oct. 7. According to Yahoo! Finance, the 52-week low on WaMu is $37.51. WaMu has touted the deal as an opportunity to expand its cross sales of credit card products.

A subsidiary of Washington Mutual, New American Capital Inc. is conducting a cash-tender offer for three classes of convertible notes issued by Providian. NACI is the corporate structure that actually completed the merger with Providian.

Under the terms of the indenture governing these notes, WaMu is required to make a tender offer to purchase the notes if there is a change of control at Providian.

The offer will be funded out of cash on hand. If all of the notes involved are tendered, it would cost WaMu $957.9 million.

The tender offer covers Providian's Zero Coupon Convertible Notes due 2021, the 4% Convertible Senior Notes due 2008 and the 2.75% Convertible Cash to Accreting Senior Notes due 2016.

WaMu is anticipating the purchase price for the Zero Coupon Notes to be $547.08 per $1,000 principal amount at maturity. If all notes are tendered, WaMu will have to pay out $476.7 million. The offer is set to expire on Nov. 21, unless extended or earlier terminated.

If all of the 4% notes are tendered, WaMu would have to pay a total of $245.3 million. This offer expires on Nov. 4.

On Oct. 3, which was two days prior to announcing the tender offer, Washington Mutual issued a statement noting the 4% notes can be converted into WaMu common stock and cash at any time during the fourth quarter. The rate, the company said, is "the conversion rate in effect at the time of conversion. This conversion right is in addition to the right of the holders to covert the notes until Oct. 16 as a result of the merger" of Providian into NACI and WaMu.

It is offering to purchase the 2.75% notes at a price, per $1,000 original principal amount, equal to 100% of the accreted principal amount, together with accrued and unpaid cash interest. In addition, a make whole premium of approximately $212.06, payable 89% in Washington Mutual common stock and 11% in cash, will be paid for each $1,000 original principal amount of 2.75% notes purchased. This part of the transaction, including the cash portion of the make whole premium, will cost the company $235.9 million. This offer expires on Nov. 2.

SNAPSHOT: WAMU Buys Providuan

Deal Value $6.1 Billion

NAC note offer $958 Million

Source: WAMU

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