Japan's largest bank, Mitsubishi UFJ Financial Group, said today it would fully acquire its US unit UnionBancal Corp. through a cash tender offer in a step to expand its banking operation in the country.
Mitsubishi UFJ, known as MUFG, said the bank plans to raise its current stake in the San Francisco-based subsidiary from the current 65.4 per cent to 100 per cent through the tender offer beginning 18 August for 20 business days through 15 September. The deal is estimated at $3 billion, the bank said in a statement.
MUFJ offered $63 per share, an 8.3 per cent premium to UnionBanCal's closing price yesterday. If successful, the deal would be the largest acquisition of a US financial institution by a Japanese bank. Independent directors of UnionBanCal had earlier rejected a 26 April offer from MUFG at $58 per share.
"We view this transaction as a first step of our growth strategies in the United States, and we will achieve greater management flexibility and aim to further strengthen our presence in the United States," MUFG said in the statement Tuesday.
San Francisco-based UnionBanCal, which operates more than 300 branches in California, Washington and Oregon, reported on 21 July second quarter net income of $141.3 million, or $1.02 per share, compared with $165.4 million, or $1.19 a share a year earlier.
Revenue for the second quarter was $713 million, up 12.6 per cent from the same quarter a year earlier. The bank has reportedly set aside $100 million in the second quarter for provisions on bad loans, up from $5 million a year earlier.
UnionBancal owns Union Bank of California, which ranks 20th in the US in terms of savings. Moreover, it is one of those rare financial institutions relatively isolated from the sub-prime mortgage crisis.
''We didn't get into the sub-prime lending business,'' Philip Flynn, Chief Operation Officer of UnionBanCal told investors on an earnings call in July following second-quarter results. ''The reason why Union Bank is doing so well is that we have been very disciplined over this last five or six years.''
The bank's shares advanced 19 per cent this year. In contrast, Citigroup Inc., the largest US bank by assets, slid 33 per cent in 2008 as the collapse of the US sub-prime mortgage market caused losses and write-downs at financial institutions to swell to more than $492 billion since last year.
Swelling bad loans and declining profit in Japan are pushing the nation's banks to seek expansion overseas. Mitsubishi UFJ invested in five Asian financial firms in the past two years, Mizuho Financial Group Inc. bought into Merrill Lynch & Co., and Sumitomo Mitsui Financial Group Inc. took a stake in Barclays Plc. (See: Japanese bank Sumitomo set to invest 100 billion yen ($930 million) in Barclays)