An agreement struck Friday between UFJ Holdings Inc. and Mitsubishi Tokyo Financial Group Inc. has dealt another serious blow to Sumitomo Mitsui Financial Group Inc.’s chances of taking over UFJ.
The deal contains special clauses that effectively block hostile takeover attempts, according to experts.
An SMFG spokesman declined to say Tuesday whether the firm plans to offer a takeover bid for UFJ.
In a takeover bid, a bidder publicly announces its plan to take a controlling stake in the target company by offering to buy the company’s shares above market price.
UFJ Holdings, the weakest of Japan’s four mega banking groups, said Friday it will receive 700 billion yen on Sept. 29 from MTFG, the nation’s healthiest, through preferred shares for UFJ Bank, the group’s main component.
Under the terms of the agreement, MTFG will have the option of converting the new shares into special preferred shares, accompanied with voting rights in the event of a third-party bid.
“The clauses have apparently discouraged SMFG from trying to launch” a takeover bid, Nikko Citigroup banking analyst Hironari Nozaki said. The clauses guarantee that MTFG will be able to control management of UFJ Bank in case of any hostile takeover.
Also, in the case of a successful takeover with “extremely good terms” for UFJ shareholders, UFJ Holdings would pay a 30 percent premium to MTFG to buy back preferred shares, UFJ Holdings President Ryosuke Tamakoshi said, explaining the agreement.
This means that SMFG, even if it succeeds in its takeover bid, would still need to pay that amount.
In response to the UFJ-MTFG agreement, SMFG has said it will consider taking further steps to persuade investors that SMFG would be the best partner for UFJ. Possible steps include “direct contact” with UFJ shareholders, it said in a statement released Friday.
“I doubt SMFG has enough cash to succeed in a (takeover bid) because it has not yet paid back public funds,” said Naoko Nemoto, senior analyst at credit-rating agency Standard & Poor’s, referring to the government’s capital injections several years ago. “It looks more likely that SMFG will start a proxy fight rather than launch” a takeover bid.
In a proxy fight, a company first needs to obtain at least 3 percent of a target company’s shares to propose an extraordinary shareholders’ meeting. If it can then secure two-thirds of shareholders’ proxy statements, it would be able to gain approval of its takeover at the meeting.
But there seem to be few benefits for SMFG to go that far to take over UFJ, Nemoto said.
MTFG President Nobuo Kuroyanagi said Monday the firm will advance the schedule for forming a tieup with UFJ in sales of financial products to individual customers and in overseas operations.
It wants to accelerate the planned management integration by achieving tieups in as many business fields as possible by the end of the year, with a view to maximizing the benefits of the merger, MTFG officials said.
UFJ and MTFG agreed in mid-August to combine their operations by Oct. 1, 2005, to create the world’s largest banking group in terms of assets.
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