Union Bank’s directors play tough, and shareholders win

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Corporate directors often are accused of being pushovers. But in the case of Union Bank, the directors pushed back at a low-ball takeover offer from their Japanese corporate parent -- and won a hefty premium for shareholders.

UnionBanCal Corp., the San Francisco-based holding company for Union Bank, today agreed to a $73.50-a-share buyout from Mitsubishi UFJ Financial Group. That was 27% more than the $58-a-share offer Mitsubishi made in April, and nearly 17% above the revised bid of $63 a share that the Japanese firm made on Aug. 12.

Wall Street clearly was surprised by the final price: UnionBanCal’s shares had closed Friday at $65.49. The stock is up $7.74, or 11.8, to $73.23 today on news of the deal. Looks like some arbitrageurs missed a great opportunity here.

Mitsubishi was in the driver’s seat on this transaction because it already owned 65% of UnionBanCal; the Japanese company, which owns the Bank of Tokyo, has been the controlling shareholder of $60-billion-asset UnionBanCal since 1996.

So once the parent decided it wanted the rest of UnionBanCal as a first step toward making a bigger push into the U.S. banking market, it was bound to prevail eventually.

But the responsibility of UnionBanCal’s independent directors was to the public shareholders who own the remaining 35% stake. It wasn’t surprising that the directors rejected the initial $58-a-share offer; you never take the first price. But Mitsubishi clearly was irked that the second offer of $63 also was turned back.

When the independent directors, led by former Sempra Energy CEO Richard Farman, rejected the second bid, Mitsubishi last week threatened to take its offer directly to shareholders via a hostile tender offer.

In the end, Mitsubishi came back to the negotiating table, and UnionBanCal’s directors got the parent firm to cough up another $10.50 a share, substantially more than the market was expecting.

As shareholders themselves, Farman and the other independent directors were negotiating in part for their own benefit. But that just aligned them with the rest of the minority shareholders.

Sometimes, corporate governance works the way it should.