The star-crossed marriage plans of Zions Bancorp and First Security Corp. received yet another blow Monday when a major New York investment banking firm reversed its opinion on the fairness of the deal to Zions' shareholders, a shocking turn of events that some merger foes say could kill the deal.
That remains to be seen, but Zions said Monday it is postponing its meeting of shareholders from March 22 to March 31 and will send new proxy cards to shareholders who may wish to change their votes on the deal from "aye" to "nay."Goldman, Sachs Group Inc. notified First Security Monday that it was withdrawing the "fairness opinion" it had earlier issued regarding the merger, saying it no longer believes that the previously agreed upon exchange ratio of the two banking companies' shares remains favorable to Zions' shareholders.
In a statement issued Monday morning, First Security chairman and CEO Spencer F. Eccles took a very firm approach to speculation that Zions may be ready to pull the plug on the deal: "First Security is poised to complete this merger on which we have diligently worked for over nine months. We believe that Zions is obligated to honor its commitments under our merger agreement and take all appropriate steps to consummate the transaction."
First Security also said it held a directors' meeting Sunday night and the board "reaffirmed" its recommendation that the merger proceed and "urged" Zions' directors to take steps to complete the deal.
The tone of that statement was a far cry from last June 6 when Eccles and his counterpart, Zions' president and CEO Harris H. Simmons, first announced their intent to wed the two companies amidst smiles, handshakes and general good will.
"This merger is primarily the result of the vision of Spence Eccles," Simmons told the news media on that summer Sunday afternoon. "This is Spence's dream . . . "
To which Eccles replied: "I wanted all his customers and he wanted all of mine. Now we're happy."
They don't sound happy anymore. First Security said Monday it believes there is no basis for the withdrawal of the fairness opinion by Goldman Sachs -- who, ironically, First Security is paying $15 million for its services -- and that there has been "no material adverse effect under the terms of the merger agreement."
Both Zions and First Security shareholders would likely take issue with that. On March 3, First Security announced that its first-quarter earnings would be as much as 27 percent below the previous quarter. The reaction of the market to that revelation was quick and savage. First Security's shares immediately plunged 38 percent, and Zions lost 24.5 percent. The two banks have shed some $2.9 billion in stock value since that announcement.
In their original agreement, Zions agreed to exchange 0.442 share of its stock for each share of First Security. The deal was originally valued at $5.9 billion, but due to the sell-off this month, it has been revalued to $3.32 billion.
Goldman Sachs didn't say why it had changed its opinion on the deal, but analysts believe it is continuing fallout from First Security's earnings' announcement.
Zions share were up 2.85 percent at $38.31 in early trading Monday while First Security's were down 4.66 percent at $11.50.
The two banks have long insisted that their deal is a "merger of equals," but the national financial press has never characterized it that way. Because of the way the stock swap is structured and the fact that Simmons and his top management would be running the new First Security in two years, it has always been seen as Zions acquiring First Security.
Monday's announcement cut short any celebrations the two banks might have been having after coming out on top Friday in a federal lawsuit attempting to stop the merger as being a violation of antitrust laws and not in the best interests of Utah residents and businesses.
In the suit's first day in court since it was filed last September, a federal magistrate ruled across the board in favor of the banks by denying the plaintiffs's motion to expedite a trial prior to the merger. He also said he would recommend against another plaintiff's motion asking for the merger to be stopped and took under advisement a defendant's motion asking that the case be dismissed.
George M. Allen, attorney for the anti-merger coalition, said Monday that Goldman Sachs' decision to pull its recommendation could be the final straw in the troubled merger agreement.
"When a deal of this complexity comes apart, there are certainly numerous causes, but we believe the scrutiny of it by the SEC that resulted from our litigation and the StopZions.com Web site . . . were major factors in the chain of events that led to the apparent termination of the merger.
"Our impression, based on some direct information, is that the merger and integration of bank management was undertaken well in advance of the contemplated Dec. 28 closure date and an argument can be made that problems at First Security may be attributed to Zions' management of First Security prior to closing the deal."
The meetings of both companies shareholders had originally been scheduled for Dec. 28 but had to be postponed to March 22 when the Securities and Exchange Commission told Zions it would have to restate its earnings because of the accounting methods it has used in buying other banks during the previous three years -- it has used the "pooling of interests" method rather than accounting from those deals as straight acquisitions.
Zions officials had not returned phone calls as of press time Monday.