March 12, 2012 / 2:05 PM / 7 years ago

Mitsubishi UFJ unit to buy Pacific Capital for $1.5 billion

(Reuters) - UnionBanCal Corp, a unit of Mitsubishi UFJ Financial Group (8306.T), said it would buy Pacific Capital Bancorp PCBC.O for about $1.5 billion, signaling a possible recovery in the bank merger market.

After the slowest year for U.S. bank mergers in three decades, improvements in credit quality and earnings this year are spawning hopes that mergers may soon seem a palatable route to profitability for buyers and sellers.

The deal is also a windfall for billionaire banker Gerald Ford who recapitalized Pacific Capital in 2010, buying a 91 percent stake in it for 20 cents a share. <link.reuters.com/ses96s>

Union Bank said it would pay $46 for each Pacific Capital share, a 60 percent premium to the stock’s Friday closing price.

Given the improving economy, the parent of Union Bank said it believed Pacific Capital’s loan portfolio would perform better than it was expected at the time of the 2010 recapitalization, leading to a credit mark-up.

Union Bank also expects Pacific to be able to utilize some of its previously discounted deferred tax assets — in which past losses can be used to offset taxes on future profits — contributing to the premium it was willing to pay for the company.

“A major plus point of this deal is that we will from day one have access to Pacific’s $248 million deferred tax assets,” John Woods, chief financial officer of Union Bank, told Reuters.

Woods said U.S. banking regulators, who still have to approve the deal, would allow Union Bank to use Pacific’s tax assets as part of its capital immediately.

“The fact that it becomes capital is very appealing, because we can use that capital to support future growth,” Woods said.

The transaction is expected to be completed in the fourth quarter of 2012.

Shares of Pacific Capital were up 57 percent at $45.02 in midday trading on Monday on the Nasdaq.

Reporting by Tanya Agrawal and Jochelle Mendonca in Bangalore; Editing by Maju Samuel

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