Yesterday Mitsubishi UFJ Financial Group announced it reached an agreement with 61.23% owned Mitsubishi UFJ Securities to make it a wholly-owned subsidiary through a share swap. The share swap ratio hasn't been finalized but a statement released by MUFG says it is planning to complete the transaction by March 31, 2007.
Comment: In the statement (pdf format) Mitsubishi UFJ Financial Group (NYSE:MTU) (Tokyo: 8306) released yesterday it said this move is part of its overall strategy to integrate its financial group. More specifically the purpose of wholly acquiring its securities unit is:
To stimulate the evolving trend from savings to investment, seize the opportunity presented by the deregulation of the Japanese financial markets, effectively and promptly meet the dramatic changes in the Japanese financial environment, further enhance cooperation between group companies while complying strictly with all laws and regulations, and conduct our business as a unified group ...
Pascal Jeannenot, founder of Japon Investissements (Japan Investments) provided Seeking Alpha readers with very good insight and analysis of the full meaning behind Mitsubishi's plans in a comment yesterday to an earlier post of mine about MUFG and its securities arm expanding in India and the banking unit receiving a license in Russia. Not only is competition heating up in the financial sector prompting strategic moves but also market-wide there is a shift underway in relation to handling of subsidiaries.
... well as you know today's big news was the fact that MUFJ has decided to buy back 100% of MUFJ securities and therefore delist the sub from TSE. This is a very interesting move which can be translated as MUFJ considering its securities arm a sufficiently strategic asset to fully incorporate it with the group.
Obviously this is a positive development for MUFJ. This move also perfectly illustrates the wider picture regarding Japanese parent companies' new strategic view toward their listed subsidiaries: in short fully buy them out (and therefore delist) or sell them off. You can be sure that from the second quarter (September) such buy backs/spin-offs will increase substantially as Japanese management is keen to hear the arguments of the buyers investing in the parent companies. I feel this is also part of a wider movement toward corporate governance principles in some way.
In today's newsletter I mentioned an interesting article in the Nikkei Financial daily which stressed that some groups like Hitachi (HIT) (but I would personally add Matsushita (NYSE:MC) or Toshiba (OTCPK:TOSBF) not to mention other listed groups like Nippon Steel) still have a plethoric number of subsidiaries (listed or not) and obviously target to 1- either totally buy back to increase consolidated earnings or 2-sell them off. The second option will soon be facilitated by TSE new set of rule to ease sell-off (or buy back) listed subsidiaries. Considering buyout funds are now knocking at Japan's doors this precise business field will soon become hot.
I would especially take a close look at what Matsushita will decide regarding its corporate galaxy. In the long term obviously it sounds positive for the parent not to mention Japanese retail investors if they screen with accuracy the next candidates for sale as listed subsidiaries fundamental ratios (Per, Pbr etc..) are usually less than the parent.
(Editor's note: Mr. Jeannenot's comment was edited for formatting purposes.)