Concord Offers Hefty Price For CU 24, But CEOs Remain Uneasy

ARLINGTON, Va. – Memphis-based Concord EFS will pay $30 million for Credit Union 24 Network, according to informed sources. But as currently structured the deal would not compensate all the Network’s shareholders equally, and there is an open question whether the shareholders will approve the arrangement, according to CEOs whose credit unions are Network shareholders. According to the sources, Concord’s $30 million offer includes $3 million for administration and for the Florida Credit Union League, which started the Network and then sold it to the credit unions in early 1998. The remaining $27 million would not be doled out to the Network’s shareholders equally but would be divided on the basis of how much a credit union used the Network. Credit unions such as the almost $4 billion Suncoast Schools Credit Union, the $2.5 billion VyStar Federal Credit Union (formerly Jax Navy) and the $1.2 billion GTE Federal Credit Union would stand to benefit the most from the deal while the majority of the Network’s other shareholder institutions (over 200) would not fare as well, the sources said. According to the terms of the original sale of the Network to the credit unions, credit union shareholders were limited to purchasing one share of the Network for $500. Many credit union shareholders would simply see this money returned, or a return with a very modest profit under the deal, the sources estimated. The leadership of CU 24 would not answer questions in detail about the deal, citing the need to manage the information flow while the shareholders were evaluating the arrangement. “We have scheduled meetings for our shareholders to get all their questions answered,” said CU 24′s CEO Jim Park. But credit union CEOs skeptical of the deal said that CU 24 has only increased their skepticism with the way it has arranged the shareholder briefings. The organization has scheduled six meetings between February 4 and February 13 in venues ranging from Richmond, Virginia, to Jackson, Mississippi, Atlanta and three locations in Florida. “If everything about this was straight up and up, why didn’t they send us information to explain the deal before these meetings so we would have a chance to evaluate it and talk about it before we walk in the door?” asked Mark Starr, CEO of the $181 million Florida Credit Union, based in Gainsville, Florida. Starr and other credit union CEOs expressed concern that credit unions which are not the biggest users of CU 24, but who nonetheless rely on the Network’s bargaining power, might be asked to sell too lightly an asset which is worth far more to them than the money their shares will bring. “In one sense, CU 24 is a paper tiger,” Starr said. “It really only exists on paper, in the arrangements these credit unions make to not surcharge their members and to be able to make arrangements among themselves. As a collective we have bargaining power. Do we want to sell that?” he asked. Some credit union CEOs openly wondered whether Concord, a for-profit firm, would be interested in honoring the no-surcharge arrangements that have characterized the Network so far. But Park said that Concord was interested in maintaining and building its credit union presence and that it would be “premature” for anyone to assume that a deal with Concord means that the Network’s surcharge free status would be lost. Concord has pointed out that it has a surcharge free program that credit unions can join for a small fee, an admission that some credit unions pointed to as proof that the CU 24′s surcharge-free arrangement has already been negotiated away. A number of CEOs expressed disappointment that CU 24 had not chosen to accept the offer, or to merge, with CO-OP Network, the largest credit union-owned surcharge free network out of California. CO-OP Network has 1,200 credit unions spread across all 50 states and, most recently, Canada, while Concord has 2,800 credit unions in its network, the firm has said. The bid from CO-OP Network for CU 24 failed because it was for about half of the offer from Concord, an informed source said. CO-OP Network’s President, Gene Polito, and CEO, Bob Rose, both expressed “disappointment” that CU 24 did not decide to keep the network in credit union hands but would not comment on their firm’s bid or on the CU 24 decision, citing the need to allow the deal to be evaluated by shareholders. It is that loss of ownership that credit union shareholders should really consider very carefully when evaluating the deal, argued Greg Blount, CEO of the $585 million Tropical Financial Credit Union based in Miami. Blount, who sits on the Florida Credit Union League Board, argued that in the era of rapidly changing financial services and arrangements it is even more important for credit unions to keep controlling ownership of their financial assets and services whenever possible. “Whether its ATMs, shared branching, electronic bill paying, whatever, credit unions are better served when they control their own services,” he said. With that said, Blount said his credit union would hold off making a decision about the deal until after it had more information about it. Wendell (Bucky) Sebastian, CEO of GTE FCU, also expressed similar sentiments. “I think it would maybe have been better if CU 24 had decided to stay with credit union ownership,” he said, “but I wasn’t on that board.” Sebastian said that his credit union would also take a wait and see attitude toward the deal pending the arrival of more information. [email protected]