APPLE VALLEY, Minn. -
Wings Financial set off a firestorm of debate when it decided to take its merger proposal directly to Continental’s membership after the El Segundo, Calif.-based credit union’s board rejected it. To sweeten the deal, the $1.6-billion Wings was offering a one-time $200 payment to each member of the $180-million Continental. The payment, amounting to about $5 million total, was to come from the excess capital held by Continental, which was then sitting on 17% capital (nearly $30 million).
In the end, Wings withdrew its merger bid after NCUA ruled that the $200 member payment violated the Federal Credit Union Act, which doesn’t permit pre-merger dividends.
While NCUA’s ruling called a halt to Wings’ merger bid, it didn’t bring an end to speculation about what the entire concept of a hostile takeover means to CUs as a whole.
“That’s a good question that remains to be seen,” Wings VP-Marketing John Wagner said. “This was all about member value. We felt–and still believe–that our deal would bring better value to the members.”
Wagner confirmed there are no plans at Wings to reopen dialogue with either Continental’s board or its members about a potential merger, though the website Wings created to garner support among Continental members for a merger still exists. It has been retooled to market the benefits of Wings membership to Continental members, since the two CUs have an overlapping FOM for Continental Airlines.
“This still isn’t over,” Continental FCU CEO Tom Glatt said. “NCUA still hasn’t closed that loophole, there still are no rules against ‘unsolicited mergers’–which I still consider to be a euphemism for hostile takeovers. This doesn’t go away until it’s dealt with.”
NCUA has pledged to craft a rule against unsolicited mergers but has yet to do so. Several state regulators, including Texas and Colorado have drafted their own rules barring hostile takeover attempts.
But among Glatt’s greatest fears is that as the Wings-Continental situation fades into the annals of history, credit unions will grow increasingly complacent about the potentially ugly genie that’s been let out of the bottle.
“This created a blueprint for banks or others outside of the industry to take over a credit union,” Glatt suggested. “No one ever thought it could be done before. Now you have to wonder who’s thinking about it. The further away it gets, the less people think about it, and the less people think about it, the less people do something about it. I don’t want this issue to go away until its dealt with.”
Both credit unions also agree that there wasn’t perfect unanimity among credit unions about the Wings-Continental situation. “There were opinions expressed on both sides of this,” Wagner related, and Glatt readily agreed.
“My sense is that it was about a 95-5 split (against the unsolicited merger),” Glatt offered. “But those 5% are not small credit unions and they are not uninfluential credit unions.”
Since withdrawing its merger proposal, Wings has moved on by adding several airlines to its FOM, including Jet Blue, Sun Country, Colgan Air and Eos Airlines, and Wagner noted a fifth that will be announced in 2008.
“We have no regrets whatsoever,” Wagner offered. “We believe every credit union should be looking at how they can bring more value to their members. That’s what we did, and we just wish [Continental] had done the same.”
