Active Investing in Japan

Below are some additional thoughts on the latest MUFG-UB offer (these comments were originally posted in response to an article published by Reuters; edited for style/formatting).

UB’s (UB: 0.00 N/A) Special Committee is very opportunistic and knows what it is doing. It has effectively taken its minority stake hostage vis a vis its board representation and a long-standing one at that for the Chief of the Committee. At the end of the day, there is absolutely no “reputation risk” as MUFG (MTU: 4.80 0.00%) fears. Why? Nobody on Wall Street cares!

So, is MUFG overpaying? Of course it is. Is it a good deal — yes, great for UBOC in this market. Will MUFG pay up even further as some Tokyo analysts suggest? Probably not. If so, it is even more concerning why there is such urgency on the part of MUFG. Meantime MUFG shareholders suffer and shareholder value is sacrificed over the desire to expand overseas (note it’s great to seek overseas expansion, but it has to be done at the right cost).

Bottom line, this is a so-called “safe” deal for a Japanese mega-bank. Union Bank’s SC knows this and is milking it. The offer in no way signals a bottom for banks’ woes. It also does not necessarily signal a forthcoming buying spree by foreign banks of their overseas subsidiaries. However, it would make sense for opportunistic HFs and other traders to buy shares and hold-out for more! See: MUFG Now Really Overpaying for Union Bank, Oh Well (Shikataganai).

$58 a share — no! $63 a share — no! $73 a share — oh, sure, might as well, especially in this market. Hats off to Mr. Farman and company for helping the little guys at Union Bank (UB: 0.00 N/A) get paid. Still scratching your head about what Mitsubishi UFJ (MTU: 4.80 0.00%) is thinking? Keep scratching. For more background see both the FT clip below and last week’s “Mitsubishi UFJ Overpaying for UnionBanCal.” As stated then, this is a “safe” acquisition, but one that is even more dubious in terms of shareholder value. Shikataganai (MUFG shareholders just sigh and shrug their shoulders … accept the fact that this is the cost of doing (more) business in the U.S. even in today’s market climate).

FD: No position in any companies mentioned. Gladly with regards to MTU and unfortunately in the case of UB.

clipped from us.ft.com MUFG clinches US bank with higher offer The deal, which values UNBC at 2.3 times book value, is considered relatively expensive by analysts. However, MUFG has a track record managing UNBC and knows the San Francisco bank well, making the acquisition a relatively safe bet, according to one analyst. “The Special Committee of independent directors is very pleased to have negotiated a transaction with BTMU that we believe is highly attractive and in the best interests of the minority shareholders,” Richard Farman, chairman of the special committee, said.