Providian Corp. announced plans Monday to spin off its banking subsidiary to shareholders while selling its insurance businesses to the Dutch financial services company Aegon NV.
The Providian shareholders, in the end, will control a richly capitalized consumer lending institution that already ranks among the most profitable credit card banks.
"For the shareholder we are unlocking the value that was not reflected in Providian's stock price," said James Rode, chief administrative officer of Providian Bancorp, the San Francisco-based banking unit.
The Providian Corp. board is expected to appoint Shailesh J. Mehta chief executive officer of the newly independent bank. He has been president and chief operating officer of the parent company since 1994, when it changed its name from Capital Holding Corp.
Mr. Mehta, who is largely credited with the success of the banking operation, reports to Irving W. Bailey 2d, chairman of Providian Corp. Mr. Bailey, a 16-year Providian veteran whose expertise is on the insurance side, is to be vice chairman of the acquirer, Aegon USA.
Aegon NV, one of the world's top 10 insurance companies, agreed to a tax-free exchange of stock valued at $3.5 billion. Aegon will also assume $780 million in debt.
For each Providian Corp. share, shareholders will receive one Providian Bancorp share plus Aegon common shares with a value of $28.
Industry analysts expect Providian Bancorp to become a more formidable competitor in the credit card business. Mr. Rode said the spinoff will allow what is currently the 15th-largest card issuer to "sharpen our focus on the consumer lending business and at the same time benchmark our performance against the monoline companies like MBNA and First USA" - second and fourth, respectively, in card receivables.
Mr. Bailey said over the past three years, the banking unit has been largely responsible for Providian's earnings growth. It has been growing at more than 20% a year while the insurance earnings have been flat.
"Providian Bancorp will be much more visible," said Mr. Bailey. "In some sense it gets its freedom."