Mitsubishi UFJ Financial Group Inc. in Tokyo, hinting that it is eager to position itself on the front end of a consolidation wave in the United States, unveiled plans for a hostile bid to gain full ownership of UnionBanCal Corp.
Mitsubishi UFJ, the largest banking company in Japan, said Tuesday that it would seek to buy the remaining publicly held shares of UnionBanCal, the San Francisco banking company in which it holds a 65% stake.
In choosing a hostile bid Mitsubishi UFJ has taken a path that observers say rarely succeeds in the banking industry.
It said it would make a cash tender offer of $63 a share from Aug. 18 through Sept. 15, an 8% premium over UnionBanCal's closing price on Monday.
The Tokyo company said it had previously pitched to a special committee of UnionBanCal directors a $58-a-share offer but failed to reach an agreement.
"Under such circumstances, we have decided to acquire full ownership of [UnionBanCal] as part of efforts to strengthen our strategies in the United States," Mitsubishi UFJ said in a press release. "We view this transaction as a first step of our growth strategies … , and we will achieve greater management flexibility and aim to further strengthen our presence in the United States."
It valued the takeover bid at $3 billion.
Through a spokesman, UnionBanCal executives declined an interview request Tuesday. But in a press release, the company said it had notified Mitsubishi UFJ on June 22 that its $58-a-share offer "did not reflect the fair value" of UnionBanCal.
In the release, UnionBanCal's directors said its special committee, advised by Credit Suisse Securities LLC, is assessing the new offer "to determine what course of action will serve the best interests" of minority stockholders. They urged shareholders "to take no action at this time and to await the recommendation of the special committee."
The directors noted that they "did not receive any revised proposal from Mitsubishi UFJ" and learned of the latest offer in Tuesday's press release.
Hostile takeovers in banking rarely succeed, investment bankers and analysts said, because management can stand behind an array of regulatory hurdles that frustrate even the most ardent of suitors.
"It is very hard to do hostiles in banking because of the regulatory nature of the business, and because it's a people business. Your assets go up and down the elevator every day, and in a hostile takeover, you can lose those assets," Dory Wiley, the president of Commerce Street Capital LLC, a Dallas investment banking company, said in an interview Tuesday.
But Mitsubishi UFJ's bid has a good chance of prevailing for two reasons, Mr. Wiley said. First, the Tokyo company already owns a majority stake in UnionBanCal, so it is unlikely that another bidder would step in with a better offer, knowing that Mitsubishi UFJ would refuse it. Second, the dismal credit environment that has rocked the banking sector for the past year has opened the door for Mitsubishi UFJ, a company operating from a position of strength, to impose its will.
"This is not cut-and-dr[ied]," Mr. Wiley said. "Getting their first offer rejected, that might have made the Mitsubishi UFJ guys pretty mad, so it might well be hostile from their view. … But it might not be viewed as entirely hostile from management's angle," since nearly two-thirds of the ownership they work for want the deal done.
Brent Christ, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, in an interview Tuesday called Mitsubishi UFJ's offer "reasonable," but he said UnionBanCal, at a minimum, will probably push for a higher bid to ensure that all shareholders get fair treatment. "But at the end of the day, I think this deal gets done because [Mitsubishi UFJ] already owns so much of the company," Mr. Christ said.
Japan's largest banking companies have not been hit as hard by the credit crisis as many of their Western counterparts. And Mitsubishi UFJ would become the latest in a string of Japanese banks looking to capitalize on turmoil in the United States to bolster their presence in the West.
Mizuho Corporate Bank invested $1.2 billion in Merrill Lynch & Co. Inc. in January. Sumitomo Mitsui Financial Group has invested about $750 million in Barclays PLC this year. Most recently, Tokio Marine Holdings Inc. said last month that it had agreed to buy the insurer Philadelphia Consolidated Holding Corp. for about $4.7 billion.
If the bid announced Tuesday is accepted, Mitsubishi UFJ would take over UnionBanCal's 330 Union Bank of California branches on the West Coast. UnionBanCal's shares would be de-listed.
Mitsubishi UFJ also would take full ownership of a U.S. banking company that, despite being bruised by California's slumping housing market, is holding up relatively well, Mr. Christ said.
UnionBanCal's second-quarter profit fell 15% from a year earlier, to $141.3 million, or $1.02 a share, but it eclipsed by 10 cents the average forecast of analysts. The company credited a 13% jump in revenue, to $712.5 million, bolstered by a net interest margin that grew to 3.74%, from 3.56%.
Philip B. Flynn, the chief operating officer, said on a conference call last month that UnionBanCal has a "very strong balance sheet" and "ample capital."
The $61 billion-asset company's Tier 1 capital ratio was 8% at June 30. Total second-quarter deposits grew 1.5% from a year earlier, to $42.6 billion, and average loans rose 17%, to $46 billion, reflecting strong commercial loan growth. "Many of our competitors have been forced to substantially reduce" lending, "allowing us to grow," Mr. Flynn said.
UnionBanCal reported a 20-fold surge from a year earlier in its second-quarter credit provision, to $100 million, and on a call last month executives said California's housing woes could persist into 2009. However, they also noted that their provisioning level is low relative to most banking companies of similar size, and they said they expect revenue growth to continue. The company raised its 2008 forecast for earnings from continuing operations to a range of $4.20 to $4.45 a share, up from $4 to $4.35. It also said it expects third-quarter earnings of $1.10 to $1.20 a share. Analysts had been predicting $1.01 a share, on average.