Minnesota-based financial services company U.S. Bancorp (USB) has signed an agreement to acquire MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group (MUFG) for $8 billion, which will include $5.5 billion cash and around 44 million common shares of USB.
Following the announcement, USB’s shares gained 2.6% to close at $57.10 on Tuesday. USB offers investment, banking, mortgage, trust, payment services and products to businesses, individuals, governmental entities and financial institutions.
Headquartered in New York, MUFG Union is a subsidiary of Japan-based MUFG Bank and operates 305 retail and commercial banking branches in the U.S. While its retail branches are located in the West Coast, the commercial branches are spread across Texas, Illinois, New York and Georgia.
The transaction does not include the purchase of MUFG’s Global Corporate & Investment Bank unit, some middle and back-office functions and other assets. Following the completion of the acquisition, MUFG will hold a 2.9% stake in USB.
The acquisition will add about 190,000 small business customers and over a million individual customers on the West Coast to USB’s portfolio. Furthermore, the financial services firm will gain $90 billion in deposits and approximately $58 billion in loans, based on MUFG’s balance sheet on June 30. The transaction will expand USB’s customer base significantly and push its deposit position in California to fifth from tenth.
The Chairman, President and CEO of USB, Andy Cecere, said, “We are also committed to maintaining both organizations’ excellent records of serving low-income communities and supporting minority-led institutions.”
USB expects the acquisition to be accretive to its earnings per share (EPS) in 2023 by around 6%, and 8% when MUFG is fully integrated. It further expects to achieve pre-tax cost synergies of nearly $900 million and incur merger charges of $1.2 billion.
The transaction, subject to customary closing conditions, is likely to close in the first half of 2022. (See U.S. Bancorp stock chart on TipRanks)
Two months ago, Barclays analyst Jason Goldberg maintained a Buy rating on USB and raised the price target to $68 from $65 (19.1% upside potential).
In a research note to investors, the analyst said, “A lower than expected loan loss provision followed by higher than anticipated fee income drove the Q2 earnings beat.”
Overall, the stock has a Moderate Buy consensus rating based on 4 Buys and 7 Holds. The average U.S. Bancorp price target of $63.33 implies 10.9% upside potential. Shares of the company have gained 60.4% over the past year.
According to TipRanks’ Smart Score rating system, USB scores a 9 out of 10, suggesting that the stock is likely to outperform market averages.