California First Issuing Stock to Finance Buyout of Union Bank

California First Bank said Monday that it plans to issue 12.6 million new shares of stock, including a public offering of slightly more than 3.1 million shares, to help finance its pending purchase of Union Bank in Los Angeles.

Bank of Tokyo owns a 77.2% stake in California First and, although the issuance of the new shares will not significantly reduce that stake, the public offering will more than double the number of California First shares in public hands. The Bank of Tokyo will buy three-fourths, or 9.4 million of the new shares, which will cut its stake in the newly merged bank by about 1% after the public offering.

San Francisco-based California First said it believes that the increase in public shares will “enhance the liquidity” of its common shares, which are are not actively traded. “However, there can be no assurance that this will be the case,” California First said in a preliminary offering circular.

Seishichi Itoh, president and chief executive of California First, said the bank reserves the right to increase the public offering by an additional 1,575,000 shares. But it is also possible that the Bank of Tokyo may acquire about 60% of that over-allotment, according to the offering circular.

In over-the-counter trading Monday, California First shares closed at $33.625, up 37.5 cents.

California First agreed in March to buy Union Bank from Standard Chartered PLC of Britain for about $750 million. The combined company, to be called Union Bank, will have assets of about $15 billion and will be California’s fifth-largest commercial bank.