Citigroup's offer price for Nikko faces another rejection
By Our Corporate Bureau | 10 Mar 2007
Mumbai: Close on the heels of a rejection of its $10.8 billion buyout offer for Japanese brokerage Nikko by Chicago-based Harris Associates, Citigroup's Cordial hit another bump with a second US investment firm dismissing it as far too low and that the brokerage was worth at least 48 per cent more.
Rejection by the Tennessee-based Southeastern Asset Management, Nikko's third-biggest shareholder, pushed Nikko's stock up 4.4 per cent above Citigroup's offer price.
Investors have been pushing Nikko's shares above Citigroup's 1,350 yen a share offer price since the bank unveiled its bid on March 6, pressuring the US bank to sweeten its bid.
Southeastern, which manages about $40 billion through its Longleaf Partners Funds, owns a 6.6 per cent stake in Nikko while top shareholder, Chicago-based Harris Associates, owns roughly 7.5 per cent.
Offshore investors together have accumulated about 60 per cent of Nikko, bought mainly after Nikko's stock plunged over revelations of an accounting scam. The accounting mess cost Nikko a $4.3 million fine, led to executive resignations and prompted the Tokyo Stock Exchange to review its listing.
The TSE is to rule on Nikko's fate by the middle of this month, and Japanese media have reported that bourse officials have already decided informally to delist the firm.
If more investors object to the deal, Citigroup would have to cough up more. But, without Citigroup's support, Nikko's shares would be vulnerable to a fall if the exchange decides to remove the firm from its trading rolls.
Harris Associates thinks Nikko is worth 2,000 yen per share. A bid of 2,000 yen per share would price Nikko at about 2.4 times its book value. Such a price would at least partly offset the delisting threat as well as damage to Nikko's reputation from the accounting mess.
Analysts said shareholders may choose to sell rather than risk Citigroup walking away at a time Nikko risks losing its stock listing over an accounting scandal.
If successful, the acquisition would be Citigroup's largest in Asia and Japan's biggest foreign buyout to date.