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Mergers among credit unions are no big deal. Dozens occur every year. Usually they involve a larger credit union swallowing up a much smaller credit union. Not always. But regardless of size, virtually all credit union mergers in recent memory have gone off without a hitch. Mergers are one reason there are far fewer credit unions today than only a dozen years ago. Although the CUs disappearing are mostly small, a number of recent successful mergers, in California and Iowa for example, have involved good size, healthy credit unions. That’s probably why I was surprised to get the unexpected announcement that the planned merger between Portland Teachers Credit Union and the Oregon Community Credit Union (formerly U-Lane-O Credit Union) was called off. It came without warning on the heels of nothing but positive publicity. Up to that point, everything connected with that impending marriage had been reported as on track. The boards and management staffs of both credit unions appeared to be singing from the same song sheet. Both were being deliberate in their deliberations. All “I’s” were being dotted and all “T’s” crossed. Had the merger been completed, it would have represented the largest amount of assets coming together in the history of credit union mergers. With Portland Teachers CU at $1.6 billion and Oregon Community CU at $700 million, the combined entity at $2.3 billion would have been a credit union high up in the listing of the country’s 100 largest credit unions. So why the divorce even before the marriage could be consummated? Were the credit unions simply too big to merge? Was there a board problem? Did the preliminary agreement on who would be CEO of the merged credit union collapse? Did the various regulators throw up unexpected roadblocks? Was it perceived that when it came right down to it that members would not approve the union? Did differing delivery systems present an insurmountable obstacle? Did the original reasons for exploring a merger not hold up under closer scrutiny? The simple answer is no, none of the above. Both credit unions are well-managed and came to the table as credit unions in good shape. Size should not have mattered. Both boards were on board from their earliest discussions. Ditto the two CEOs and their management staffs. From day one it was agreed that Cliff Dias, the Portland Teachers CEO, would occupy the combined CU’s corner office until he flew off to Hawaii to enjoy the good life of early retirement. At that point, Oregon Community CEO Gordon Hoerauf would become CEO. No problem there. Both credit unions are located in Oregon and both are state charters with federal insurance. State and federal regulators gave their blessings with no strings attached (such as divestiture of branches in close proximity). As for members, no visible opposition to the move had surfaced. The required membership vote for approval was coming up in only a couple of weeks from the day the plug was pulled. The merger proposal was expected to pass muster with both memberships. Right to the end, the reasons for joining hands such as putting the credit unions in a much stronger competitive position than they could be going it alone, still made sense. As did the strategy for utilizing each other’s branches, especially those in Portland from Oregon Community’s standpoint. The official reasons given for aborting the merger plan included some words and music about how difficult it proved to be trying to pull off the merger using the “merger of two equals” philosophy. The two CEOs said the same thing in different ways: “it came down to the differences in the way each credit union handled different functions.” My take on what happened is pretty simple. A crucial mistake was made when it was decided to treat the potential merger as a merger of equals. There is no such thing. Yes, there have been major corporations who positioned mergers that way. Like Chrysler Corporation. We all know what a disaster that turned out to be when it eventually came out that the German merging partner was more equal than Chrysler. So it goes with credit union mergers. One partner has to be the dominant player and be able to get past the sticky decisions. In this case, if an agreement had been reached from the outset that Portland Teachers Credit Union, as the larger of the two CUs, would be calling most of the shots, the merger could have happened. If the two credit unions couldn’t, or wouldn’t, agree to that, then the same result would have been achieved, namely, no merger. However, that approach would have saved a lot of time, consultant involvement, expense, frustration, creation of task forces, anxiety, and energy. Which leads to this troublesome question: If there were in fact insurmountable philosophical differences and too-difficult-to-resolve operational problems, why did it take so long to figure this out? It would seem that early on such considerations as who’s by-laws and which loan system and which data processing system would be used in a combined credit union could have been decided. That’s just one of many difficulties that surface when trying to use the “equals” approach. Lots of non-credit union organizations merge all the time. Do they get hung up on such operational issues, especially so far along in the merger process? Of course not because it is understood from the starting gate that one of the players is empowered to make the tough calls. Portland Teachers and Oregon Community say they may make another attempt to marry down the road. They won’t. This was a one-time opportunity. But even if I’m wrong, and they do come back to the table, if they again try the merger of equals approach it is doomed to failure. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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