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Japanese bank-Mitsubishi UFJ Financial Group, Inc. (also known as MUFG) (MTU - Analyst Report) strategizes to buy majority stake in the Thailand based-Bank of Ayudhya. MUFG will acquire 75% stake for approximately ¥560 billion ($5.6 billion). The agreement is expected to be complete by the end of Dec 2013. However, the deal awaits approval from Thai and Japanese regulators and shareholders of Bank of Ayudhya.

MUFG plans to expand its operations in Southeast Asia with the acquisition. However, regulations in Thailand restrict foreign banks with local branches to provide capital to its banks. Therefore, MUFG will merge its Bangkok branch with Bank of Ayudhya to smoothen its operations.

Terms of the Deal

As per the transaction, MUFG will initially acquire 25% stake held by General Electric Company (GE - Analyst Report). Following this buyout, MUFG will initiate a tender offer for the remaining shares. As per the tender, expected to be initiated in Nov 2013, MUFG will offer 39 Thai baht ($1.26) per share to the Ayudhya shareholders.

Further, MUFG intends to operate the Bank of Ayudhya with Thailand's Ratanarak family which continues to hold a 25% stake.

This deal will be the largest acquisition in Asia by a Japanese bank. Moreover, it would be the second largest deal for MUFG, the first being the ¥900 billion investment in Morgan Stanley, a U.S. investment bank, in 2008.

Currently, Bank of Ayudhya holds assets worth ¥3.4 trillion. Therefore, MUFG's lending balance is expected to catapult 350% through the acquisition of Bank of Ayudhya.

Similar Moves

In 2012, MUFG planned to acquire 20% stake in VietinBank from the Vietnamese government for about ¥60 billion ($720 million).

Moreover, among other Japanese lenders, in May 2013, Sumitomo Mitsui Financial Group Inc. (SMFG - Snapshot Report) signed a $1.5 billion deal to acquire 40% stake in PT Bank Tabungan Pensiunan Nasional, an Indonesian lender. Further, another bank - Mizuho Financial Group, Inc. (MFG - Snapshot Report) - purchased 15% stake in Vietcombank for $760 million in 2011.

Our Viewpoint

Encouraged by the growing opportunities in retail banking activities in Southeast Asia, Japanese lenders have chosen the path of expansion in this region. Moreover, the move comes on the heels of stagnate loan demand in domestic market in Japan. Therefore, with strong balance sheets, Japanese banks are diversifying from domestic market to overseas acquisitions.

Through its major subsidiaries and affiliated companies, MUFG engages in a broad range of domestic and international financial operations, including commercial banking, investment banking, trust banking and asset management services, securities businesses, credit card businesses, and provides related services to individual and corporate customers. Therefore, this deal would help strengthen Asian operations of MUFG.

Currently, MUFG carries a Zacks Rank #1 (Strong Buy).

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