Aug. 14 (Bloomberg) -- UnionBanCal Corp., California's second-largest bank, gained in New York trading after the company rejected Mitsubishi UFJ Financial Group Inc.'s $3 billion cash bid to buy full control of the lender as too low.

The $63-a-share offer, $2 below yesterday's closing price, ``is not in the best interest of UnionBanCal's minority stockholders,'' the bank said in a statement. Tokyo-based Mitsubishi UFJ, which has a 65 percent stake in the San Francisco-based lender, said it remains willing to begin talks with independent directors.

``If Mitsubishi UFJ offers a little bit more, I think the deal will go through smoothly,'' said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $2 billion. ``Both Wells Fargo and Bank of America, the other two big banks in California, will have to back off now for a while, so it's a great chance for Mitsubishi UFJ.''

While California's lenders face rising defaults in the worst housing slump since the Great Depression, UnionBanCal has fewer late payments and charge-offs. Mitsubishi UFJ's bid has been made at a time of ``negative sentiment in, and uncertain outlook for, the overall banking sector,'' and the lender's value shouldn't be affected by those factors as they create ``opportunities'' for UnionBanCal, the bank said yesterday.

Japan's biggest bank may have to pay as much as $70 a share to acquire the remaining shares, according to David Threadgold, a bank analyst with Fox-Pitt Kelton Asia Ltd. in Tokyo. UnionBanCal has gained 34 percent in New York trading this year after avoiding the subprime lending that triggered more than $500 billion in writedowns and losses at financial firms.

Direct Offer

Mitsubishi UFJ on Aug. 12 said it would make a direct offer to investors to purchase the 35 percent of the company it doesn't own, saying UnionBanCal's independent directors refused to negotiate after rejecting an earlier $58 offer.

Bids of $65-per-share or $70-per-share would equal 2 times to 2.2 times Union Bank's book value, or the amount of common equity reported in financial statements, BMO Capital Markets analyst Lana Chan said in a report today. ``This range is not unreasonable given that UB has the sixth-largest deposit market share in California,'' she said, citing its share at 5.4 percent.

Bank acquisitions since 2007 have averaged 3.3 times book value, though multiples have declined with average bank stock values dropping 56 percent in the past 19 months, Chan said.

More Acquisitions

The offer reflects a ``beachhead for further strategic moves'' by both Mitsubishi and other Japanese banks, said Neil Katkov, senior vice president at Celent, a Boston consulting firm. ``This may be the largest bid in the U.S. by a Japanese bank, but the significance of this deal goes way beyond that.''

Both UnionBanCal and Mitshubishi said they are open to further discussions.

``The proposed price does not reflect the strength of UnionBanCal's strong capital position'' or the superior credit quality of its assets, said Richard Farman, director of the UnionBanCal special committee assigned to review the bid.

UnionBanCal gained 46 cents to $65.46 at 4:04 p.m. in New York Stock Exchange composite trading. The shares have gained 34 percent this year, compared with a 26 percent decline in the KBW Bank Index of 24 large U.S. banks.

To contact the reporters on this story: Linda Shen in New York at lshen21@bloomberg.net; Finbarr Flynn in Tokyo at

Last Updated: August 14, 2008 16:09 EDT