Holding Providian's Playbook

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Here's a quickie lesson on finding an edge in investing. It comes courtesy of the news this morning that credit card provider Providian (NYSE: PVN) is in talks to be acquired by Barclays (NYSE: BCS), and has also spoken with British financial firm Lloyd's (NYSE: LYG).

Two weeks ago, I noted that Providian was closing down a collections operation in Louisville, Ky., putting some 300 people out of work. My take on the news was simple -- the company had closed out enough of its subprime accounts that it was able to consolidate some of its collections offices. Go read it, it isn't very long.

Very soon after, I received a note from Bill Lindala, who writes the Agency News column for CollectionIndustry.com. (As a complete aside, if you haven't signed up for CollectionIndustry.com's free email alert, I highly recommend it. It's one of the most worthwhile that I receive, with information on everything from bank and consumer debt to economic trends to individual corporations. They do a fantastic job. When you think about it, the attention to trends makes sense, as collections is a highly economically sensitive industry.)

But I digress. Lindala, an expert in the collections biz, took my analysis to task. His personal take was that the company had moved into a business with more competition and was "bulking up its balance sheet" for one reason -- to make it more attractive as a takeover target. He was dead certain that a sale or merger was on the horizon.

As we now know, a merger wasn't just on the horizon; it was on the next block and was closing awfully fast. We'll see what happens, but for me the lesson is already clear: When someone who knows a business backwards and forwards gives his insight on an event, it is always a good idea to pay close attention. Lindala could have been wrong about the merger, but he's seen enough of the same story that he's pretty good at predicting the ending.

Bill Mann owns no companies mentioned in this article.