U.S. Bancorp has agreed to acquire MUFG Union Bank NA from Mitsubishi UFJ Financial Group Inc. in a cash-and-stock transaction.
Bloomberg News reported earlier that the Japan-based parent was working with an adviser to identify options for the San Francisco-based unit.
Per the terms of the agreement, U.S. Bancorp will purchase MUFG Union Bank for approximately $8 billion, including $5.5 billion in cash and approximately 44 million shares of U.S. Bancorp common stock. Upon closing, Mitsubishi UFJ Financial Group will hold a minority stake of approximately 2.9% in U.S. Bancorp.
The transaction excludes the purchase of MUFG Union Bank's global corporate and investment bank, certain middle- and back-office functions, and other assets.
At announcement, S&P Global Market Intelligence calculates the deal value to be 112.26% of common equity, 127.53% of tangible common equity, 7.56% of assets, 8.87% of deposits and 7.70x earnings. The tangible book premium to deposits ratio is 1.91%.
Market Intelligence valuations for bank and thrift targets in the West region between Sept. 21, 2020, and Sept. 21, 2021, averaged 132.80% of book and 143.79% of tangible book and had a median of 14.80x last-12-months earnings, on an aggregate basis.
The deal is expected to close in the first half of 2022.
U.S. Bancorp will retain all of MUFG Union Bank's frontline branch employees. Additionally, the acquisition is expected to add more than 1 million consumer customers and about 190,000 small business customers on the West Coast to U.S. Bancorp unit U.S. Bank NA, and approximately $58 billion in loans and $90 billion in deposits based on MUFG Union Bank's June 30 balance sheet, according to a news release.
Based on Market Intelligence data, with the completion of the deal, U.S. Bancorp will expand in California by 280 branches to be ranked fourth with a 7.04% share of approximately $2.11 trillion in total market deposits, will expand in Washington by 14 branches to be ranked fourth with a 10.71% share of about $225.65 billion in total market deposits and will expand in Oregon by two branches to be ranked first with a 21.68% share of roughly $112.68 billion in total market deposits. The company will also expand in Arizona by one branch to be ranked fifth with a 3.65% share of approximately $199.37 billion in total market deposits and will expand in Illinois by one branch to be ranked 10th with a 2.74% share of about $706.5 billion in total market deposits. In addition, U.S. Bancorp will enter New York with two branches to be ranked eighth with a 3.22% share of approximately $2.95 trillion in total market deposits.
U.S. Bancorp expects the transaction to be approximately 6% accretive to EPS in 2023, assuming a 75% synergy phase-in, and 8% accretive to earnings when fully integrated. The transaction has an estimated internal rate of return of more than 20%. The purchase price is estimated at 1.3x of MUFG Union Bank's tangible book value, based on the expected capital to be delivered at close. U.S. Bancorp expects to achieve approximately $900 million in pretax cost synergies equal to 40% of estimated non-interest expenses through a combination of real estate consolidation, technology and systems conversion and other back-office efficiencies. U.S. Bancorp also expects to incur merger charges of $1.2 billion.
MUFG Union Bank recently entered into a consent order with the Office of the Comptroller of the Currency in connection with alleged deficiencies in the company's technology and operational risk management.
U.S. Bancorp said in the news release that it has evaluated and incorporated the regulatory concerns into all aspects of the deal process, including due diligence, integration planning and valuation. "The company believes it can successfully remediate the issues applicable to MUFG Union Bank in connection with the transaction, and that the order will not restrict U.S. Bancorp's ability to operate and grow its business as planned," the bank said.
Goldman Sachs & Co. LLC is the exclusive financial adviser and Simpson Thacher & Bartlett LLP is legal adviser to U.S. Bancorp.
As of June 30, U.S. Bancorp had $558.89 billion in assets and MUFG Union Bank had $133.21 billion in total assets, according to Market Intelligence data.