SAN FRANCISCO - Shareholders of First Security Corp. gave a tepid thumbs-up to a merger with Salt Lake City rival Zions Bancorp. on Wednesday, putting the fate of the strained merger in the hands of Zions' shareholders, who continue to show little appetite for the deal.
Indeed, in a sign of the mounting tensions between the companies, Zions, which owns a stake in First Security, planned to vote its shares against one of the proposals First Security put before shareholders, while carefully reiterating that the company continues to support the deal.
In a packed meeting at the Marriott Hotel in downtown Salt Lake City, the shareholders voted 64% in favor of issuing shares of First Security stock to Zions shareholders, and 54% in favor of the exchange ratio, which converts one share of First Security stock to 0.442 of a share in the combined company. To go ahead with the merger, First Security needed votes from at least half its shareholders on each proposal.
After the meeting, First Security's chief executive officer reiterated the banking company's commitment to the union, while echoing statements that have placed the blame directly on Zions for any future failure to merge.
"We believe that this is a great transaction for all stockholders, and the underlying rationale for the merger has not changed," Spencer F. Eccles said in a release.
This view has gone contrary to Zions' investment advisor, Goldman Sachs, which withdrew its fairness opinion on the exchange offer which was voted on today. First Security announced March 3 that its first-quarter earnings could be off as much as 8% on the previous quarter. Goldman's withdrawal prompted First Security to accuse Zions of being in breach of its obligations under the merger agreement, and to suggest it would take legal action if Zions shareholders do not approve the vote.
Zions management has been careful to show that it is within the bounds of the merger agreement. Still, the company balked at First Security's request for shareholder approval to engage in a "reverse triangular merger," in which First Security would establish a newly formed, wholly owned subsidiary to be merged into Zions.
"Zions has not consented to and does not approve of a change of form of the merger," Dale Gibbons, chief financial officer for Zions, told shareholders. At the same time, "nothing I have said should be construed to mean that Zions plans to vote its shares in First Security against the merger."
Wall Street expected First Security shareholders to stick by the union, which would help prop the bank's share price. On Wednesday, First Security's stock closed down 12.5 cents, to $12.625.
The merger deal will face its real test March 31, when holders in Zions will cast their vote. If that goes unsuccessfully, First Security Corp. may decide to remain independent, at least until the company and its share price can rebound.
"I really don't know if First Security's management would want to sell to someone else with their stock price so low," said John Otis, an analyst at Bear, Stearns & Co.
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