The Acquisition Bid for UFJ Holdings
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Case Code: BSTR133 Case Length: 17 Pages Period: 2000 - 2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization: Sumitomo Mitsui Financial Group, UFJ Holdings Industry: Banking Countries: Japan Themes: Mergers Acquisition and Takeovers |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Competitive bidding is common in the US and Europe and finally we are witnessing a change of the tide in Japan, which is good for the economy. UFJ should let them compete and choose whoever offers the highest premium."
- Nobumichi Hattori, Professor, Hitotsubashi University and Former Head, M&As, Goldman Sachs Group, in 2004.
"Whoever gets UFJ will be overpaying and bailing out a distressed franchise."
- Charles Lahr, Franklin Resources Incorporated, in 2004.
Introduction
The Mizuho Financial Group (Mizuho), Mitsubishi Tokyo Financial Group (MTFG), Sumitomo Mitsui Financial Group (SMFG) and UFJ Holdings (UFJ) were the four leading players in the Japanese banking industry. In July 2004, MTFG and SMFG, the 2nd and 3rd largest banks, initiated a takeover battle to acquire UFJ, Japan's 4th largest bank. Analysts were quick to point that the merger of the leading Japanese banks was a move in the right direction in view of the poor financial performance of industry players. Commenting on the acquisition bid, Shohei Ueda, a spokesman for the Nippon Life Insurance Company, said, "This issue of Mitsubishi Tokyo and Sumitomo Mitsui bidding for UFJ should be appreciated...it shows a positive attitude among Japanese banks to compete against global rivals."3 The Japanese banking industry had witnessed a major financial turmoil during the nineties and in early 2003 due to the non-performing loan crisis caused by the continuing economic recession in Japan. To sustain their financial performance, Japanese banks were trying to reduce the negative impact of bad debts by merging, to acquire more assets and customers and reduce costs (Refer Exhibit I for a note on the Japanese Banking Industry).
In May 2004, UFJ and SMFG entered into an agreement for the sale of UFJ's trust business to Sumitomo Trust & Banking. But, within a few weeks, UFJ changed its decision and sent a proposal to MTFG for a full-fledged merger of the two banking groups. UFJ announced that it had changed its mind because it felt the sale of its trust business was not going to solve the bank's financial problems. Soon, SMFG sent a proposal to UFJ to merge both the groups. When UFJ did not respond positively, SMFG raised the offer considerably. The way SMFG went about the process of acquiring UFJ's business marked a revolution in the tradition bound Japanese corporate world. For the first time, an aggressive bid was made by a bank to acquire another bank in Japan. The reason why UFJ's acquisition was important for both SMFG and MTFG was that the company successful in acquiring UFJ would become the largest bank in terms of assets4 in the world (Refer Exhibit II for top ten banks in the world in terms of market capitalization, assets and profits in the fiscal 2003).
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