Mitsubishi UFJ is set to take full control of Union Bank of California, in a $3.5bn buyout which is the second largest outbound M&A deal involving a Japanese financial institution so far this year.

Japan's largest lender said on Monday it had won the approval of the board of UNBC to buy the 35 per cent of the bank it did not own after it sweetened its offer by about 17 per cent to $73.50 per share, from an initial $58 per share.

The new offer also represents a 26 per cent premium to UNBC's closing price the day before MUFG's initial offer and values the 25th largest bank in the US at about $10.1bn.

It will cost MUFG $3.5bn and follows opposition from a special committee of independent directors of the UNBC board who were against both its initial offer and an increased public offer of $63 per share last week.

The deal is the second largest by a Japanese financial institution this year, following Tokio Marine's $4.7bn acquisition of Philadelphia, the US non-life insurance company last month. It is also the fourth largest outbound Japanese M&A deal so far this year, according to Dealogic.

It takes the value of Japanese acquisitions of overseas companies to $40.2bn, up 73 per cent from the value of all outbound Japanese M&A deals last year, Dealogic says.

The deal also highlights the growing ambitions of Japanese banks and insurance companies to expand their overseas operations amid a declining domestic market.

"This agreement will provide us with a wide range of opportunities to expand our presence in the US market through our enhanced relationship with UNBC, Katsunori Nagayasu, president of Bank of Tokyo Mitsubishi, MUFG's core bank, said on Monday.

"The Special Committee of independent directors is very pleased to have negotiated a transaction with BTMU that we believe is highly attractive and in the best interests of the minority shareholders," Richard Farman, chairman of the special committee, said.

Japanese financial institutions, which have spent the past several years cleaning up their balance sheets and are relatively well capitalised compared with their western counterparts, are being approached by a broad range of overseas financial institutions seeking investors.

Mizuho, Japan's second largest bank, has invested $1.2bn in Merrill Lynch, while Sumitomo Mitsui has invested about $1bn in Barclays.

MUFG has expressed its desire to further expand its operations in the US, where it is seeking to obtain financial holding company status, which would allow the Japanese bank to expand its operations into investment banking.

The deal, which values UNBC at 2.3 times book value, is considered relatively expensive by analysts.

However, MUFG has a track record managing UNBC and knows the San Francisco bank well, making the acquisition a relatively safe bet, according to one analyst.