Shareholders of

Zions Bancorporation

(ZION) - Get Report

rejected a proposed merger with

First Security


Friday, bringing an end to weeks of wrangling between the companies about the terms of the merger.

The Zions shareholders thwarted the deal, largely because they believed the terms had become less beneficial when First Security's stock price fell sharply after the company issued an earnings warning earlier this month.

The two Salt Lake City-based companies had agreed to merge last June, in a deal that would have given Zions shareholders one share of First Security, and First Security shareholders 0.442 of a share of the combined company, to be called First Security.

The all-stock deal originally was valued at $5.9 billion when it was announced in June, but had since fallen to about $3.8 billion as First Security's shares fell sharply. The company's stock price weakened after it announced in early March that first-quarter earnings could tumble 27% in the first quarter because of slower mortgage-banking activity, higher interest rates, and problems with its indirect auto and consumer lending activities.

Last week, First Security reiterated its commitment to the merger and its shareholders approved the deal.

But in a release, Zions called the First Security vote "confusing." The company said First Security counted votes for adoption of the merger plan as votes for the issuance for additional shares in anticipation of the merger. "Zions does not believe that this is proper or authorized," the company said.

Zions went on to say that First Security's plan would deprive First Security's management of benefits that were part of the company's existing benefits plan, which "would create significant morale problems and be counterproductive to integration of the management of the combined institution."

Shares of both companies had been halted late Friday pending the news. Zions closed up 3 5/16, or 8.7%, at 41 5/8. First Security closed up 1/4, or 2.1%, at 12.