Doubt increases over First Security-Zions merger

Phil Levine

Thursday, March 23, 2000 | 11:16 a.m.

First Security Corp. shareholders voted Wednesday to proceed with a scheduled merger with crosstown Salt Lake City rival Zions Bancorporation, parent of Nevada State Bank.

However, industry watchers say the vote did little to clarify -- or solidify -- the proposed merger between the two financial giants. Zions actually voted its First Security shares against one of the First Security merger proposals presented at a shareholders' meeting.

"One of the things that stood out for me was the lack of overwhelming support offered by (First Security) shareholders for this merger," said Joe Morford, analyst with San Francisco-based Dain Rauscher Wessels.

"I think most people expected a stronger level of support from their shareholders."

Morford said less than two-thirds of the 400 First Security shareholders gathered in Salt Lake City voted in favor of the proposals put forward.

Zions shareholders are to vote on the merger on March 31.

The Zions vote was originally scheduled to take place Wednesday, but was delayed following an advisory decision by investment banker Goldman, Sachs & Co.

Goldman advised Zions the original terms of the merger were unfair, and that "it should no longer rely" on previous Goldman advice regarding the proposed union.

Standard & Poors analyst Vincent Piazza said the First Security vote -- and Zions' response to it -- "casts greater doubt" as to the likelihood of the merger's completion.

"By their reaction, Zions appears to be saying that this is not the deal they agreed to originally," he said. "It calls into question how likely the deal is to succeed."

In a statement, Zions officials said the First Security vote was "confusing," adding that the structure of Wednesday's vote was "a different transaction than the one to which Zions and First Security have agreed."

Analysts were unsure about Zions' motives -- or concerns -- regarding Wednesday's vote.

"Their (Zions') actions really send out mixed signals, and add even further confusion to the situation," said Morford.

Still, First Security officials restated their bank's commitment to completing the merger.

Following the shareholder vote, the bank released a statement saying: "First Security remains committed to completing this merger, and we are hopeful Zions will perform under the June 6 agreement with First Security, and take the actions necessary to complete the merger."

Morford said the battle of the bank press releases indicates the once-friendly bank merger has taken on a more confrontational tone.

"Their statements seem to reveal a fair amount of hostility between the two companies," he said. "I think the wording seems to indicate that lawyers are now playing a bigger hand in the bank's moves."

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

The merger's failure would call into question previously announced plans by both banks to divest 68 branches in Utah and Idaho, and close nine Clark County and two Northern Nevada-based branches.

In recent weeks, both bank stocks have been volatile. On March 3, First Security announced its first quarter profits would be off by about 25 percent from the previous quarter.

Shares of both banks plummeted in the wake of that announcement.

However, Wall Street had little reaction to Wednesday's vote.

In midday trading today Zions' stock was unchanged at about $42.

Reflecting institutional investor concern over the successful completion of the deal, Zions' stock has risen almost $7 since the Goldman advisory; First Security stock was trading at $12 today, down 50 cent from yesterday's close.

Analysts believe it's unlikely the stocks will make any significant moves until the Zions vote is completed.

"I don't think we'll see any real reaction on Wall Street until they see the way the Zions vote goes," said Piazza.

Zions Wednesday statement said: "When questions were first permitted by First Security after the conclusion of the vote, a Zions representative stated:

'Zions is concerned that the First Security vote today was confusing. Proxies were solicited by First Security for adoption of the plan of merger between First Security and Zions, but First Security disclosed that it did not count those votes for purposes of adoption of the plan of merger to which Zions and First Security have agreed. Instead, First Security counted votes for adoption of the plan of merger as votes for the issuance of additional shares in anticipation of a 'reverse triangular merger,' which is a different transaction than the one to which Zions and First Security have agreed. Zions does not believe that this is proper or authorized.

Although First Security has not responded to Zions' written request for further information about the proposal that Zions agree to change the structure of the proposed merger, Zions is concerned that the effect of such a change would be perceived as an attempt to deprive a broad range of First Security's management of substantial financial benefits that they might otherwise have under the First Security Comprehensive Management Incentive Plan in the event the merger is not consummated. Zions does not believe that this change is in the interests of the combined new company. Among other things, Zions believes that a change which many members of management of First Security may perceive as being intended to deprive them of financial benefits would create significant morale problems and be counter-productive to effective integration and management of the combi ned institution.' "

Zions said it voted the shares of First Security that it owns against approval of the issuance of additional shares in contemplation of such a structural change. Zions voted its shares in favor of the second proposal considered at the meeting, approval of the restatement of First Security's certificate of incorporation, which it said is necessary to consummate the merger under the original terms.