NASHVILLE - The merger between Tennessee's VolCorp and San Dimas, Calif.-based WesCorp, temporarily abandoned when state regulators shunted the proposal back to the corporates, is back on track and slated for completion in the first quarter of 2007.
Tennessee's Department of Financial Institutions felt compelled to reject the original proposal due to the "silence" of state law on such a marriage, according to VolCorp CEO Rick Veach.
"There is no provision in the legislation regarding a merger, it was silent, so our first proposal couldn't be approved by the DFI without a compelling reason, and we didn't have one in the original proposal," Veach said.
In its notification, the DFI helpfully identified what that compelling reason might be: a pay-out of the retained earnings of the corporate. "So in July we proposed that payout and we were informed on Nov. 24th that the merger can now move forward. It's still subject to DFI approval, but the next step is a vote of our members. Then, we apply to the NCUA for approval," added Veach.
Veach expects the merger to be completed in the first quarter of 2007 if all goes according to plan. It will be a merger of a giant corporate (WesCorp has $27 billion-in-assets) to a strong regional corporate (VolCorp has $1 billion-in-assets) but will bring the economies of scale that makes for strength, said Veach.
VolCorp's $26 million of retained earnings will be issued to members as Paid in Capital over a 20-year period (initial distribution and dividends), he said. "What's unique is that the payment of dividends will come from the savings of the merger."
Veach explained that due to VolCorp's converting to WesCorp's journal ledger system and not having to do an annual report or conduct an outside audit, the savings will pay for the dividends. The payouts are based on the length of membership and the amount of shares owned. VolCorp has 230 credit union members.
Veach is confident that members will approve swiftly, as the results of the straw vote conducted in April had 109 of 130 members voting for approval. "It's a friendly merger," noted Veach, as VolCorp will keep its Nashville presence and retain all employees.
He said the board did an extensive analysis on possible merger partners and sent Requests for Proposal (RFP) to several corporates and WesCorp provided the best fit. "The credit union industry is changing and we're changing along with it," said Veach. "The worst scenario would have been to string this thing along, and it's not a good thing to be in limbo, so I'm very happy with this outcome."
