Zions, First Security deal looking more doubtful

Phil Levine

Monday, March 13, 2000 | 11:13 a.m.

The proposed merger of Salt Lake City-based banking giants First Security Corp. and Zions Bancorporation -- owner of Nevada State Bank -- is in doubt because of an advisory decision by investment banker Goldman, Sachs & Co.

On Friday, Goldman informed Zions that current terms of the merger were no longer fair, and advised the bank that "it should no longer rely" on previous Goldman advice regarding the proposed union.

Joe Morford, analyst with Dain Rauscher Wessels of San Francisco, said Goldman informed Zions the previously-agreed to exchange ratio of .442 per share of Zion stock for each First Security share was no longer fair.

As a result of that move, Zions postponed its shareholders meeting from March 22 until March 31.

Bank officials said the move was necessary to permit shareholders time to consider the new information about the merger.

Stocks of both banks have been volatile in recent weeks. On March 3, First Security announced its first quarter profits would be off by about 25 percent from last year. Shares of both banks tumbled in the wake of that announcement.

Analysts believe First Security's recently revealed financial weakness likely triggered the new Goldman advisory.

Zions-owned Nevada State Bank recently acquired Reno-based Pioneers Citizens Bank, and has 58 Nevada branches. First Security has 22 offices statewide.

Wall Street had mixed reactions today to the announcements.

Zions' stock was up about $1 to just over $38 per share, while First Security stock declined just under $1 to $11.50

Despite the Goldman, Sachs announcement, officials at First Security Bank continued to express optimism the merger would proceed as scheduled.

"There's nothing that we've seen from Goldman, Sachs that should affect the merger," said First Security spokeswoman Jenny Schumann. "We remain committed to completing the merger as planned."

A Zions spokesman could not be reached for comment.

However, industry analysts say this latest move could signal the beginning of the end of the proposed union.

"It's becoming increasingly likely that this deal will not go through," said Morford. "There are still a couple of weeks to go until March 31, but Zions' shareholders will likely have serious questions (about share prices) after the Goldman move."

Morford attributed the rise in Zions' stock to institutional investor nervousness over the proposed merger.

"(Zions') institutional shareholders would not be disappointed if this deal didn't go through," he said. "They've made it clear they would prefer Zions to move on. The stock moves reflect that feeling."

Vincent Piazza agrees the deal may be in trouble.

"It's really a toss-up at this point whether this deal goes through," said Piazza, analyst with New York-based Standard & Poors. "That's not surprising if you look at the deal. It values Zions at $16.50, and the stock is now trading around $38."

Analysts say terms of the deal may have to change for the merger to go through.

"A revised offer would be plausible to help ensure this deal goes through," said Piazza. "Although at this point it appears that there's not much willingness to make such a new offer."

With a deadline rapidly approaching, the time to make such an offer is also limited.

"Our June 6, 1999, agreement calls for completion of this deal by March 31," said First Security's Schumann. "That deadline still remains."

If the merger is completed, the union would make the new First Security Bank Nevada's third-largest financial institution, with about $3.5 billion in combined assets.

Currently, Bank of America is the state's largest bank with $4.6 billion in assets, followed by Wells Fargo with assets of $4.3 billion.