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Zions Merger: Getting Stung Within the Hive

by tommy kirchhoff

It started on June 6th of 1999. Zions Bancorp and First Security Corp. announced to the world their "merger of equals." The two largest banks in the state would merge to form a $40 billion western banking superpower right here in the heart of Utah. Both banks began an immediate campaign to convince Utah residents that the move was good for the state's economy.

The merger's principle object was "to enhance the prospects of Utah remaining the headquarters of a major financial institution." It stated how a financial force of this magnitude would keep Utah on the financial map, and provide benefits such as job creation, business formation, financing, commercial development and leadership in charitable, civic, cultural, educational and social organizations. Mormons helping Mormons. Isn't that the Mormon way buzz, buzz?

But a good lot of Utahans disapproved. Utah residents like Rich Valgardson of Provo felt the merger would create a devastating monopoly. After experiencing the Mormon cannibalism of Zions Bank, these residents envisioned a single bank dominating Utah's finances-snuffing medium and small family businesses. They figured that once amassed with market value, the new bank would continue to invest in places like California and Colorado, but leave Utah businesses off its Christmas card list.

Valgardson and his constituents formed the Opposition Coalition, and retained attorney George Allen as their champion. A veteran of big-case battle, Allen filed a complaint in U.S District Court in September of 1999 pursuant to the Sherman and Clayton anti-trust acts. Unusual to this type of case was the issue of Religion, Culture and Perception. Allen's complaint raised the issue of Mormonism, and its effect on Utah's economy with this merger.

The complaint stated that a history of disputes and controversies was born in the 19th century between Mormons and non-Mormons, and that seen from outside the state, the fabric of Utah's legal and business communities is woven by LDS Church members. In Allen's words, "it is a fact of life in terms of the perceptions beyond Utah's borders that a non-LDS Church member may be disadvantaged in business dealings in Utah. That perception…constitutes a barrier to market entry as real as a mountain range."

Soon after filing, David Valgardson (Rich's brother) interviewed with his bishop, Craig Carlile in a "Temple Recommend." You see, "Bishop Carlile" is an attorney with the law firm of Ray, Quinney & Nebeker-the primary outside legal counsel to First Security Bank. Carlile told David Valgardson to "stay out" of any activity related to protesting the merger. Rick Valgardson, of course, filed all of this info neatly in his affidavit to the U.S. District Court.

With the LDS powers that be buzzing heavy on Mormon ears, the Opposition Coalition laid down the big bucks for expert witness, Dr. Kenneth Thomas of the Wharton School. Thomas systematically milled through every document on both sides, and measured the potential for monopoly on several, banking-industry standard indices. Thomas determined that this merger did indeed violate the Sherman and Clayton Antitrust acts, and that the influence of the LDS Church fueled the monopoly even more. After all, buzz, buzz, Mormons do business with Mormons. That's the Mormon way, buzz, buzz.

Allen began to brainstorm the problem of public visibility, and came up with a revolutionary idea. He needed an easily updated, information archive for anyone to access the anti-merger point of view. Allen saw a "case website" as his Excalibur. Thus, was born.

Allen worked with Utah Internet Resources, Inc. (UIRI)-a small corporation with a big interest in healthy Utah business environments. UIRI picked up the ball and began to run. The company created the website and updated it at every hiccup.

By October, the web statistics were surging ahead. The site was getting upward of 1500 hits per month; but more importantly was WHO. First Security Bank was the number one (recognized) visitor. Number two was the U.S. Department of Justice with 469 hits in October alone. BYU, Utah State, Bank of Utah, the SLOC, and the Deseret News all seemed to stop by every day. The StopZions bulletin board became the hottest, most embarrassing topic of conversation. People threw dirt at the merger like a fresh pile of dog crap.

For the next five months, the battle raged on. Most Utahans just assumed the merger was inevitable. They had seen the power of the LDS, and wouldn't dare fight those forces; but in this case, who was the good Mormon? Worthy Mormons were reading the seemingly anti-merger business section of the Deseret News (wholly owned by the LDS Church); on the other hand, Gordon B. Hinkley was once the Chairman of the Board at Zions Bank. "What does the Church really want me to do, buzz, buzz?" blew the top off the thing. The Fed, the FTC, the DOJ, FDIC and the State of Utah hit the site a lot. Tons of banks, including Japanese, British and international investment banks like Nomura Securities and Warburg Dillion Read, banged on the site. Corporations like BM, Motorola, Deloitte & Touche and Ernst & Young became almost bloodthirsty for the knowledge of what had to tell. The frenzy of business education roared as more than 15 major universities seemed to be using the website as a virtual classroom. By the end of February, investment analysts were e-mailing and calling Utah Internet Resources, Inc. almost every day. All told, almost 75,000 hits were struck upon StopZions' server.

Through January and February of 2000, First Security stocks held in the steady mid-twenties. Then, on the March 3rd, it happened. Ticker symbol FSCO closed at a pathetic 13.9. Zions, too, was chainsawed in the market. By March 15th, FSCO dropped to 11.25. First Security stockholders had lost $2 billion in market value in two weeks. Goldman Sachs & Co., the deal's broker, withdrew its recommendation of the merger. There were implications that Zions caused First Security share prices to drop, and rumor that an intervening SEC would begin to kabosh the merger on the basis of insider trading, etc., etc., …but who knows?

On March 31st, 2000, the Zions shareholders voted overwhelmingly to reject the merger with First Security. Wells Fargo didn't waste any time to make an offer on the wobbly-kneed First Security. We don't know how the rest goes yet. Nothing's written in stone.

But if you want to check out the whole story, with all the grit you can muster, check out