Union Bank’s Japanese parent gets stern about buyout bid

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Here’s a rarity: some upbeat news about a California bank.

Shares of UnionBanCal Corp., which owns Union Bank, surged $7.32, or 12.6%, to a two-year high of $65.50 on Tuesday.

The catalyst: The company’s longtime controlling shareholder, Mitsubishi UFJ Financial Group of Tokyo, said it would launch a tender offer for the 35% of the shares it doesn’t already own.

Mitsubishi -- parent of the Bank of Tokyo -- is offering $3 billion, or $63 a share, for UnionBanCal. But that isn’t impressing the California bank’s independent directors, who advised shareholders to sit on their hands for the moment.

This fight actually has been going on for months, without shareholders’ knowledge. Mitsubishi made a $58-a-share offer to UnionBanCal’s board on April 26, when the stock was trading for $53. The independent directors studied the offer for about two months, then rejected it June 22, saying it was too low.

Shareholders didn’t hear about it because companies aren’t required to publicly disclose merger negotiations.

Now Mitsubishi, apparently frustrated with UnionBanCal’s response, has decided to take its offer directly to investors.

With UnionBanCal’s stock ending Tuesday above Mitsubishi’s bid price, it’s clear that investors are betting that the two sides will agree to a deal at a price above $63 a share.

San Francisco-based UnionBanCal, with $60 billion in assets and 334 offices (mostly in California), has managed to sidestep the worst of the credit problems dogging the banking system. The company’s troubled loans amounted to just 0.4% of assets at June 30, far below the level of many big U.S. banks.

The firm’s second-quarter profit report helped its shares rebound sharply in July.

As for Mitsubishi’s bold move to go hostile, that’s a reflection of the revived health of Japan’s banking giants in recent years, said Lana Chan, an industry analyst at BMO Capital Markets in New York. ‘The Japanese banking system is in much better shape now,’ she said. At the same time, Japan’s banks ‘see much better growth prospects in the U.S.’ than at home, she said.

Mitsubishi made clear that it views 100% control of UnionBanCal as a first step toward a bigger push into the U.S. market -- which could be good news for other American banks now in need of a deep-pocketed white knight.

‘Acquiring full ownership will enable [Mitsubishi] to demonstrate an enhanced commitment to the U.S. market and allow greater management flexibility, including for participation in the future consolidation of the U.S. banking market,’ said Katsunori Nagayasu, president of the Bank of Tokyo-Mitsubishi, in a statement.