The postmortem on last month's two failed merger attempts that were victims of member opposition hits on three ingredients: poor communications, a rushed timetable and lack of enough advance explanation to constituents and the public.

That was the assessment this week among merger consultants and the principal parties themselves as to what went wrong with the rejected mergers in Montana and Louisiana, the first such formal public defeats in years involving a member vote at large or mid-sized CUs.

“It seems pretty clear that the positive message simply did not get through and somebody in management or on the boards miscalculated potential opposition,” surmised David Bartoo, head of Oregon-based Merger Solutions Group, which in serving a CU client has at times encountered a scenario in which concerns were not addressed in advance.

In his experience, the differences are cleared up at the board, management and employee levels before a formal member vote is put on the table, he said.

In Montana and Louisiana, the two negative member votes occurred at the $63 million Montana First CU of Missoula, Mont., rejecting a bid by the $432 million Horizon CU of Spokane Valley, Wash., and by the $96 million Main Street Financial FCU of Baton Rouge, La., turning back a takeover by the $260 million Jefferson Financial CU of Metairie, La.

Management of both suitor CUs, Horizon CU and Jefferson Financial, acknowledge their communication mistakes and despite the rejection vow to work toward a revote perhaps later in 2012.

“I think you could say these two cases are more of an aberration, a bit rare and not indicative of any kind of trend, but it is a reminder that you can never take the members for granted,” observed Dennis Dollar, the former NCUA chairman and head of a Birmingham, Ala., consulting firm bearing his name.

It seems apparent in both Montana and Louisiana, he said, that the benefits to the members of how their financial lives or would be improved or the credit union itself strengthened was not carefully advanced, said Dollar.

Sometimes, passage of a merger deal can depend on how active the members are and simply how content they are with status quo, suggested Tom Glatt Jr., head of a Wilmington, N.C., consulting firm.

The apparently vague description of Montana First's proposed merger with Horizon, as an out-of-state entity, apparently did not go over well, said Glatt. The lesson to be learned there is “if you are trying to convince owners to transfer their ownership to a new organization, you better spend a great deal of time developing a tight, concise value proposition,” he said.

“Most credit union leaders see life from the inside out and the Montana First merger made perfect sense from that vantage point,” he said. “Members obviously don't have a shared perspective. In fact, Montana First is doing well–decent membership growth, solid loan and deposit relationships–which means their members are probably content. Content people generally see no need for change to the status quo.”

Christie Sisco, president/CEO of Montana First, and who has repeatedly expressed both surprise and disappointment at the Jan. 5 outcome, has said the low turnout–82% of the membership did not vote–was a huge factor.

“It is so unfortunate” she said that the final result from a minority “could affect the membership at large.”

To other CUs entertaining mergers, “I would recommend using the Web to the best of your ability” she advocated. In hitting on the problem of getting employees behind the merger, the message that everyone at Montana First was guaranteed a job in Missoula, if they wanted it had to be stressed.

A similar problem occurred in Baton Rouge with rumors spreading that branches would be closing and staffers would lose jobs, said Mark Rosa, president/CEO of Jefferson Financial, the acquiring CU. Those rumors had to be quashed early on which did undermine the final negative vote, he said.

Michael Bell, an attorney with Detroit-based Kotz Sangster and a merger adviser, maintained CU consolidation plans are sometimes “negatively affected by the fear of big banks and the Wall Street phenomenon.”

In other words, he explained, the big bank-Wall Street taint can sometimes create negative feelings, which need to be addressed. He said he has seen studies “that show 90% of people will say no to a proposed change at the beginning simply because it is a change.”

Regarding the Jefferson-Main Street merger in Louisiana, Glatt said he suspected Main Street management played down its economic troubles as it struggled with the NCUA assessment, but it should have been out front in the merger discussion.

“What is interesting about Main Street is that to read their newsletters over the last two years, you would never know of their struggles,” said Glatt.

Some of his CU client are very candid about the tough times they have had and, in effect, have prepared members for the possibility of tough choices, such as a merger, said Glatt.

Denny Graham, head of St. Louis-based FI Strategies LLC, which advises CUs and banks, said sometimes management and boards simply lack the time willingness, energy or knowledge to think through the benefits of a business combination.

“In any merger, there are three constituencies–the boards, the employees and the members–and presumably the boards understand the logic and the merger negotiated for the right reasons,” said Graham.

The boards may be supportive but often, the other two constituencies are shocked by the news. The affinity relationship also plays a part, said Graham, who noted that members of one CU may simply say, “Those guys aren't like us–different state, different company which rallies the troops against a merger.”

And employees do not always understand the business logic and worry about losing their jobs, and so “the key takeaway is that the boards must be prepared to defeat any emotional arguments that will come up during the discussions,” Graham added.

“Emotion often trumps business logic,” he concluded in a point also echoed by Ted Thames, senior director of Cornerstone Advisors of Scottsdale, Ariz., who also finds CU mergers more emotionally charged than bank mergers, which are more financially charged.

Apparently with credit unions “there is more tradition and pride” at stake, he concluded.

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