By David Dolan and Yumiko Nishitani
Mitsubishi UFJ said on Monday it had raised its offer to $73.50 per share after a special committee of UnionBanCal's directors dismissed last week's bid of $63 as too low.
MUFG, which is seeking the 35 percent in the California lender it does not already own, said UnionBanCal's board has agreed to the new terms and would recommend that shareholders accept the offer.
UnionBanCal's shares were up $7.74, or 11.8 percent, to $73.23 in midday trading on the New York Stock Exchange.
The deal represents a significant bet by MUFG, which is looking to grow beyond its softening home market and boost its presence in the United States, even as the world's largest economy stumbles through the credit crisis.
UnionBanCal, the parent of Union Bank of California, has largely avoided the subprime mortgage meltdown that hurt other U.S. regional lenders. The bank, one of the 25 largest in the United States in terms of assets, had 337 branches in California, Oregon and Washington as of June 30.
"Our main target is to boost the presence of our group in the United States," a spokesman for the Japanese bank said at a briefing for reporters.
The price of $73.50 represents a 12 percent premium to UnionBanCal's closing price on Friday of $65.49 and is 27 percent higher than the $58 Mitsubishi UFJ initially offered in April, which was also rejected.
"Had this dragged on, there could have been a negative impact on UnionBanCal's business, or some sort of reputational risk," the Mitsubishi UFJ spokesman said.
The stock surged last week after the Japanese bank announced the tender offer.
Mitsubishi UFJ said it would postpone its tender offer to no later than August 29. The offer was originally scheduled to start on Monday.
CLINCHING THE DEAL
Several U.S. analysts, including Lana Chan of BMO Capital Markets and Brent Christ of Fox-Pitt Kelton Cochran Caronia Waller, in research notes last week said that $70 per share would be a reasonable valuation.
Yet some market participants questioned whether the price was enough to clinch the deal.
"The stock market may demand a higher price, assuming that MUFG desperately needs full control of the subsidiary for its broader U.S. expansion strategy," said Hironari Nozaki, analyst at Nikko Citigroup.
"The stock market may play mind games. Details of Mitsubishi UFJ's agreement with UnionBanCal's committee are not available, and even if the committee has approved the new tender, it does not have power over minority shareholders."
Analysts have said Mitsubishi UFJ may now be looking to expand more in the United States -- and use UnionBanCal as a platform for further acquisitions.
MUFG has hinted as much, calling the UnionBanCal acquisition a "first step." Sources at the bank have told Reuters that Mitsubishi UFJ wants to establish its own stronghold in the United States, rather than attempting to rule a California bank from Tokyo.
Taking full control of UnionBanCal would allow MUFG to use the California lender to buy other banks without any resistance from minority shareholders, Nikko Citigroup's Nozaki told Reuters last week.
Japanese firms have been expanding more and more overseas, given the poor outlook for growth at home.
Tokio Marine Holdings <8766.T>, Japan's largest property and casualty insurer, said last month it would buy U.S. insurer Philadelphia Consolidated <PHLY.O> for about $4.7 billion -- the largest U.S. acquisition by a Japanese financial firm.
But one Tokyo fund manager, who declined to be identified, noted that Mitsubishi companies also have a history of paying too much for overseas acquisitions.
"MUFG should be careful not to follow the footsteps of Mitsubishi Estate, which bought <Rockefeller Center> for a bubble price, or it may be ripped off when it moves to buy more institutions in the U.S," the fund manager said.
(Additional reporting by Junko Fujita, and Paritosh Bansal in New York; Editing by Brian Moss and Hugh Lawson)