Mitsubishi UFJ Financial Group Inc., whose pursuit of UnionBanCal Corp. appeared poised to enter hostile territory just a week ago, sealed a deal and avoided a showdown with an offer sweetened enough to win over dissenters.
The Tokyo banking company, Japan's largest, already owns 65% of UnionBanCal, a situation that analysts said limited the options available to both sides in the talks: Third parties had almost no way to enter the fray and the two principals had almost no way to exit without a transaction happening.
Mitsubishi UFJ has said that full ownership of UnionBanCal would give it a launching pad for a new U.S. strategy, which analysts said was a thinly veiled announcement that the Japanese bank is positioning itself to shop for more on the West Coast.
On Monday. Katsunori Nagayasu, the president of Bank of Tokyo-Mitsubishi, said in a statement that the "agreement will provide us with a wide range of opportunities to expand our presence in the U.S. market." And he said UnionBanCal's ability to remain profitable despite the economy's downturn "is a testament to the quality of its management and board and the strong relationship we have built together over the years."
If Mitsubishi is preparing to be an active consolidator, it is spending $3.5 billion as its entry fee. That price is up from a $3 billion offer that UnionBanCal directors turned down. The two companies agreed Monday on a cash tender offer of $73.50 a share for the 35% of UnionBanCal held by the public, up from the $63 a share that a special board committee said fell well short of the bank's worth. The Japanese company had said it would commence a tender offer starting Monday at $63 a share even without UnionBanCal directors' approval, suggesting it was bracing for a hostile takeover. But it also said it was open to further negotiations, and after talks resumed late last week, the two sides agreed to the higher offer and avoided overt conflict. (Mitsubishi had initially offered $58 a share in April; the rejection of that bid spurred Mitsubishi's decision to go public with the higher one.)
Mitsubishi UFJ, which has owned a majority stake in UnionBanCal since 1996, said it would begin the 20-day tender offer no later than Aug. 29 through its wholly owned subsidiary, Bank of Tokyo-Mitsubishi UFJ.
Executives at the two companies did not respond to interview requests. But in a press release Richard D. Farman, a director and the chairman of UnionBanCal's special committee, called the deal "highly attractive and in the best interests of the minority shareholders."
Lana Chan, an analyst at Bank of Montreal's BMO Capital Markets Corp., wrote in a research note Monday that the latest bid is "attractive enough to get the deal done."
Mitsubishi UFJ, with a market value $83 billion, is flush with capital and can afford the premium price, analysts said.
Joe Morford, an analyst at Royal Bank of Canada's RBC Capital Markets, said in an interview Monday that Mitsubishi UFJ's offer appeared "reasonable." The bid was about 25% higher than the price of UnionBanCal's shares at the start of this month — before news of the takeover offer — he said. "At the end of the day, the dollars are not that important to Mitsubishi," Mr. Morford said. "Ultimately, they want to expand in the U.S., and so what they need most is to get this deal done."
Richard Bove, an analyst at Ladenburg Thalmann & Co. Inc., said in an interview Monday that he was "shocked that the Americans were able to browbeat Mitsubishi into doing this deal" at a notable premium because the Japanese bank already had leverage as the majority owner — a position of strength it probably could have used to achieve a hostile takeover.
UnionBanCal's stock closed Friday at $65.49 a share. It soared 11.7% Monday, to $73.18 a share.
Mr. Bove said, however, that recent economic conditions probably factored in to Mitsubishi UFJ's decision-making, giving it a new sense of urgency. In the past week, the dollar has gained markedly against foreign currencies as mounting data points to economic slowdowns in Europe and Asia.
"My assumption now is that Mitsubishi will move in and try to acquire banks up and down the West Coast," Mr. Bove said.
With several companies outside California such as Washington Mutual Inc. in Seattle and KeyCorp in Cleveland having publicly stated that they are scaling back banking operations in the nation's most populous state, and with smaller banks struggling under the weight of mortgage losses, he said, a clear opportunity exists for relatively strong California banks to gain share — both organically and through deals.
The UnionBanCal deal, the largest announced this year, could spur more activity, he said, if the U.S. economy shows more signs of improvement. He pointed to Canadian and European banking companies as possible candidates to bid on banks in coveted U.S. markets — before the dollar gains too much ground on other currencies.
Analysts said that UnionBanCal, despite some struggles, has weathered the credit storm well, particularly relative to other California banks. Its second-quarter profit dropped 15% from a year earlier, to $141.3 million, or $1.02 a share, but beat by 10 cents the average analyst forecast. The $61 billion-asset company's revenue jumped 13%, to $712.5 million, and total average loans rose 17%, to $46 billion. Its Tier 1 capital ratio was 8% at June 30.
