Updated from 12:44 a.m. EDT

Mitsubishi UFJ Financial

(MTU)

plans to acquire $600 million of

Morgan Stanley

(MS) - Get Report

common shares, raising its stake in the bank to more than 20%.

Mitsubishi UFJ, Japan's largest bank, said it would buy 25 million shares of Morgan Stanley for $24 a share this Wednesday.

The transaction won't require Mitsubishi UFJ, or MUFG, to pay additional cash. Instead, Morgan Stanley will buy back some preferred shares MUFG purchased last year in exchange for the new common stock, which unlike preferred shares, come with voting rights.

Morgan Stanley said last week it would offer 167.9 million common shares for $24 each in an effort to raise about $4 billion. The company also is pricing an offering of $4 billion in bonds.

The news followed a government report that highlighted vulnerabilities in the banking system and called on 10 banks, including Morgan Stanley, to raise more capital. Morgan Stanley faces a $1.8 billion shortfall, the

Federal Reserve

told the bank.

Both the debt and stock offerings were larger than Morgan Stanley had initially indicated.

MUFG currently holds a mixture of preferred shares and common stock. It decided to swap its preferred holdings for common stock to ensure that its voting rights do not fall below 20% after Morgan Stanley's new share offering, said MUFG spokesman Takashi Takeuchi.

Since Mitsubishi UFJ gave Morgan Stanley a $9 billion lifeline in October in the wake of

Lehman Brothers'

collapse, the two companies have been examining ways to propel their alliance forward even as the world economy fell on hard times. In March, Morgan Stanley and MUFG set plans to merge their Japanese brokerage units into a new securities company.

"The purpose of this investment by MUFG is to maintain and strengthen the strategic alliance between MUFG and Morgan Stanley," the Japanese bank said in a statement.

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