Wings Financial FCU Sets Possible Precedent with First-Ever Hostile Takeover Attempt; Industry Concern Very High
APPLE VALLEY, Minn. and EL SEGUNDO, Calif. -- In a first for the credit union industry, one credit union is attempting a hostile takeover of another credit union. Wings Financial Federal Credit Union is seeking to merge with Continental Federal Credit Union despite the latter's repeated rebuffs. Wings is now in the midst of an aggressive campaign to persuade Continental members to help move the merger proposal forward. On March 9, the $1.6 billion Wings Financial submitted a merger proposal to the board of directors at $177 million Continental FCU. Paul Parish, president/CEO of Wings Financial, said the merger would help bring both CUs together to serve the "busy lifestyle" of aviation employees through an expanded branch and free ATM network. Continental's members would also have access to lower loan rates, higher savings rates, lower fees and better service, Parish noted.
In its pitch, Wings Financial said Continental members would receive a one-time merger payment of approximately $200 per member if the merger were completed. Wings Financial said Continental members with a "typical" basket of financial products such as mortgages, car loans, savings accounts and certificates of deposit could see as much as an extra $974 in value every year. Should the merger go through, Wings Financial would operate in Continental FCU's current locations staffed with the same employees, according to Wings Financial.
"Our field of membership is the aviation community and we live its culture and tradition," Parish said. "Our promise to [Continental FCU members] is to deliver all of those benefits while preserving the connections they feel to their financial institution."
Wings Financial serves more than 110,000 members through 17 branches in nine cities and more than 25,000 surcharge-free ATMs. El Segundo, Calif.-based Continental FCU serves more than 25,000 members and has branches in Houston, Newark, N.J., and Tempe, Ariz. Both CUs have trade, industry and profession charters that allow them to serve employees and retirees of the air transportation industry in the United States, as well as their family members.
When Continental FCU President/CEO Tom Glatt was contacted by Credit Union Times the day the merger proposal was submitted he was livid about what he said was an unexpected announcement. Glatt said the CU has repeatedly told Wings Financial that it is not interested in merging. He said this is the third time Wings Financial has approached Continental FCU about merging--the first time in the summer of 2006, again in September 2006 when Glatt took the helm and today's proposal. "The strongest thing I can say is this would be considered a hostile takeover," Glatt said. "Does this sound like the way credit unions do business? We are not interested at this time." Discussions with Continental about a possible merger go back more than two years, but the March 9 proposal is not an attempt to take over the financial institution, Parish said. Wings Financial's board started looking for methods to grow the CU approximately two and a half years ago, which included identifying potential merger candidates. Parish said Continental and other similarly structured CUs were looked at. Continental's complimentary field of membership, office structure and delivery systems made the CU an ideal candidate. Parish said Wings Financial initially contacted Continental in November 2005, then in May 2006 and again in the fall of 2006. "We thought they were reasonably receptive," Parish recalled of the meetings between the respective boards and chairmen. "There was an interest, although cautionary." Parish said a number of external factors have impacted credit unions' operations. "As we look at major trends, we see continued growth in operating expenses and we believe a reasonable level of growth is necessary to spread those costs through a broader group of people," Parish said. "It's a tough time. We're all facing very tight margins in a highly competitive market."
While Wings Financial is hoping the board will review the proposal and go forward with the merger, the CU has already launched a campaign that includes efforts to get Continental's members to move the submission forward. Wings Financial rolled out a Web site, www.continentalwings.com, on March 9 that has an online petition encouraging Continental members to direct the board of directors to enter into "good faith discussions" with Wings Financial's board to negotiate a merger plan and agreement. The petition also calls for setting a date for a special meeting and a mail ballot vote of Continental's membership to confirm member interest in the merger proposal received from Wings Financial.
Wings Financial has also promised Continental's members $200 each should the merger go through. Winning Members Over
Glatt confirmed that Wings Financial representatives were at Continental's branch in El Segundo, Calif., on March 9 and in Newark, N.J., March 12 handing out brochures to members about the proposed merger. According to Wings Financial Spokesman John Feld, reps were at the Newark airport, not Continental's branch.
Glatt appealed to Continental's members via a letter on the CU's Web site. In it, he says, "After thorough review, it was determined that--while this merger may benefit the other credit union--it certainly would not serve your best interests nor the long-term interests of Continental FCU."
Glatt also told members Wings Financial has "embarked upon an aggressive campaign to take over your credit union by approaching our members directly with misleading information. This is an unprecedented, inappropriate, unethical and underhanded way of Wings FFCU taking your credit union away from you--our members--simply to achieve its own growth objectives."
He pointed out that Continental's "financial health, excellent membership, wide array of products and services, and strong service record make us an attractive merger partner. However, we know this merger is not in your best interest--and we are here to only serve your interests," Glatt wrote.
Meanwhile, Wings Financial said it would follow the usual merger process, which started with a formal proposal to Continental's board of directors. NCUA bylaws state CU boards "have fiduciary responsibility to vote for measures in members' best interests," Wings Financial noted. If the proposal is rejected, Wings Financial said it would conduct a member campaign to "influence" the board to authorize a membership vote on the proposal.
In a fact sheet sent to Credit Union Times, Wings Financial had previously said if necessary, it will attempt to gather Continental member votes to override the board and authorize a vote. The number of signatures needed is 750, Parish emphasized that he hopes the board will consider the value the merger could bring, so that the petition isn't necessary.
When Wings Financial's board started looking at expanding to a TIP charter, one of the alternatives on the table was possibly converting to a bank, Parish acknowledged.
"At the time, [the board] asked for and received all the alternatives," Parish said, which included converting to a bank. "We feel there is great value in remaining a credit union. Our board has and will focus on remaining a credit union."
Wings Financial expanded to a TIP charter in November 2003, but the move has yielded "modest growth," Parish said. In 2006, 76% of the CU's membership came as a result of TIP, according to Wings Financial. The CU now serves employees from more than 30 airlines.
Still, "our membership has been flat to declining recently, in part, because so many people have left the airline industry" due to layoffs and the beating the airline industry has taken over the past few years, Parish said.
Glatt wondered why Continental with its "strong net worth and strong management" was being singled out when there are other similar airline based-CUs that have trade, industry and profession or TIP charters. According to financial performance data from NCUA, as of Dec. 31, 2006, Continental's net worth is at 16.78%, above its peer average of 11.76%.
As for the next step in the merger proposal process, Parish was unsure. At press time, Wings Financial had not received a formal response from Continental.
"We don't know what the next step is," Parish said. "Frankly, we don't believe it's hostile. It's all about bringing added value. We believe [the board members are] good people and will do what is best for their membership." --firstname.lastname@example.org