TOKYO: Japan’s second biggest bank, Mitsubishi Tokyo Financial Group (MTFG), formally offered US$29bil for fourth ranked lender UFJ Holdings yesterday, ending months of silence over the terms of its bid to create the world’s biggest banking group.
MTFG’s offer, which counters a rival bid by third ranked Sumitomo Mitsui Financial Group (SMFG), values UFJ at a 3.1% premium to its closing share price yesterday and comes six months after MTFG and UFJ agreed in principle to merge.
While MTFG’s offer falls short of the nearly US$35bil being offered by SMFG, it may still satisfy UFJ shareholders, given doubts about SMFG’s ability to absorb UFJ and UFJ managers’ strong preference for MTFG.
If successful, the merger would be the largest ever in corporate Japan. It comes as the revitalised Japanese banking sector sheds years of accumulated bad debt and seeks new alliances to boost profit and cut dependence on low-yielding corporate loans.
Under the proposed deal, MTFG shareholders would get one share in the merged company, to be called Mitsubishi UFJ Financial Group, for each MTFG share, while UFJ shareholders would get 0.62 share for each UFJ share.
MTFG has said it needed time to examine UFJ’s bad loan-ridden books before setting merger terms.
But even before the announcement, MTFG had steadily consolidated its position as the strong front-runner in the takeover struggle.
MTFJ injected 700 billion yen into UFJ last year to help it cut billions of dollars’ worth of bad loans, and the two groups have begun combining operations ahead of the October target for the merger.
SMFG, meanwhile, has shown signs of giving up on its spoiler bid, and financial sources said earlier this month the bank was instead considering a merger with long-time ally Daiwa Securities Ltd.
Separately, SMFG and Daiwa announced yesterday that they would merge their venture capital units, Daiwa’s NIF Ventures Co Ltd and SMFG’s SMBC Capital, in October.
Additionally, SMFG may fall short of its full-year profit target due to higher-than-expected charges for problem loans, bank sources say, and some analysts question if SMFG could absorb UFJ without raising outside capital.
A merger of MTFG and UFJ would create the world’s biggest bank with about US$1.8 trillion worth of assets, surpassing Citigroup of the United States and Japan’s Mizuho Financial Group.
The 3.051 trillion yen deal would top the 2.7 trillion yen union between Sakura Bank and Sumitomo Bank in 2000 which created Sumitomo Mitsui, according to data firm Dealogic.
UFJ has lagged other banks in cleaning up its balance sheet, but has stepped up bad-loan disposals ahead of the planned merger, reducing exposure to long-time problem clients such as supermarket chain Daiei Inc.
UFJ is the only big Japanese bank that has failed to pull itself out of the red amid the sector’s recovery. The bank expects to post a 750 billion yen loss for the business year ending March 31. – Reuters