Advice On Mergers From Some Folks Who Know

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The credit union now known as Westerra CU has mergers down to a science, and it has some advice on getting through the process as quickly and painlessly to members and employees as possible.

Denver-based Westerra merged with two other area credit unions Oct. 1, 2005 (when the trio began referring to themselves as Westerra), and it is scheduled for another merger with Gateway CU this Oct. 1. The mergers have created the third-largest CU in Colorado.

According to two Westerra executives, the mergers have gone well-and with no layoffs-thanks to the attention management paid to aligning the cultures of the credit unions involved, not just operations.

Three other important factors for the success of the merger efforts, said Alan Peppers, Westerra's president and CEO, and Duane Bruno, chief administrative officer were: communication, communication, communication. The credit unions sent regular notices to members, had frequent electronic and face-to-face communications that kept the staff informed of progress made and timelines for implementation, and press releases and articles in credit union publications with a "consistent message."

Peppers and Bruno discussed the completed and pending mergers during an educational session at CUNA Mutual Group's Discovery conference here. In January, 2005, DPS Credit Union, which served Denver Public School employees, retirees, students, graduates and their families as well as 80 SEGs and a small number of ZIP codes, entered into a merger agreement with Safeway FCU, which served Rocky Mountain region Safeway employees and their families, plus 200 SEGs.

Gateway formerly served Lowry Air Force Base, which is closed. The CU's CEO left one year ago, and DPS has been managing it, Peppers explained. Gateway's members approved the merger with Westerra in May.

Not Just Scale-Skill

According to Peppers, the CUs examined mergers for several reasons, including increasing competition in Colorado and because merging is the quickest way to create the necessary economy of scale.

"Not just scale, but skill," he said. "The world around credit unions has gotten much more complex. The skill set by talented, qualified individuals working at credit unions is very important."

There are several factors that go into a successful merger, Peppers said. First, it must clearly work to the advantage of the members of each credit union ("If we couldn't look members in the eye and tell them this benefits them, we shouldn't be doing it"), board representation should be proportionate, board chairmen need to "champion" the change and drive the process, and the CEOs should agree on their respective roles prior to board negotiations.

Staff continuity, with employees retaining salary and benefits with no layoffs, is "a big factor," said Peppers. "When you see 'merger' in the papers, it is always followed by 'layoffs.' We didn't want to do that."

According to Peppers, no CU merger will work without compatible cultures and business philosophies. He cited studies that found 80% of all mergers that fail due so because of culture clash. "We shifted our focus from operational alignment to cultural."

Formal letters of intent should be signed at the beginning of the merger process, he advised. Confidentiality is important throughout the negotiation process to avoid member uncertainty if plans fall through.

Peppers said the focus on members and staff resulted in employees being engaged in the process. At the board level, a willingness by board and committee members to relinquish their positions helped it succeed. "There was a tremendous amount of unselfishness. They put aside the feelings they had," he said.

Bruno said the DPS and Safeway board and CEO negotiations occurred over a five-month period. The CEOs initiated discussions under confidentiality agreements, and senior management was involved in the entire process. The staffs were informed and trained within days of the finalized merger agreement. Members and media were told within two weeks.

After the member announcement, a two-month financial and organizational due-diligence process ensued. Bruno said the member votes came two months after the due-diligence process, and the effective date of the merger was four months after members approved. The entire process took one year.

"We could have completed sooner, but we made a conscious effort to do it a little longer," he said. "We wanted to ensure proper communication, effective execution, and to ease the transition for members and staff."

As for Westerra and Gateway, Bruno said the Gateway board chairman and the former Safeway chairman initiated discussions when Gateway's CEO left the CU. Westerra followed the same process and timeline: one year from negotiations to effective date of merger.

Bruno said all members of senior management should be involved in presentations to the staff to expand the face of leadership. Answering employees' questions is paramount, especially the "what about me" worries. Added Peppers: "Once employees feel their job is secure, then they can start thinking about the organization."

Not all was smooth sailing, Peppers reported. Some managers did not embrace the merger. "They were told: 'This may not be the best organization for you.' It is part of the process."

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