UnionBanCal Could See Higher Bid: Analysts

Amid the wreckage of the banking sector caused by the year-long credit crunch, one mid-size California player feels confident enough in its standing to reject a takeover offer.

Shares of UnionBanCal(UB Quote) traded modestly higher on Thursday, one day after the San Francisco-bank told shareholders to reject a $3 billion, or $63 a share, tender offer by its majority stakeholder, The Bank of Tokyo-Mitsubishi UFJ, a wholly-owned subsidiary of Mitsubishi UFJ Financial Group. The Japanese bank currently holds a 65% stake in UnionBanCal.

Analysts say the market expects the bid to move higher. The $63 a share price represents an 8.3% premium to Monday's closing share price of UnionBanCal -- the day before the offer was proposed. Shares were up 21 cents to $65.21 on Wednesday afternoon.

"We do not believe this is the end of the dance," writes Lana Chan, an analyst at BMO Capital Markets. Mitsubishi UFJ "has the ability to do [raise its offer] given that the $3 billion offer is only roughly 3% of [its] market capitalization and given that UnionBanCal would likely be used as a launch-pad for potential future acquisitions in the U.S. for the large Japanese bank."

Analysts say the bid could rise to between $65 a share to $70 a share.

UnionBanCal says the offer "substantially undervalues" the company. The San Francisco-based bank cited its strong capital position, "superior" credit quality despite a poor banking environment, particularly in its home state. It also said that the Japanese bank was taking advantage of the negative sentiment in the banking industry these days to submit a low offer.