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Citigroup inks Japan's largest foreign buyout

Citigroup Inc. said Friday it successfully took over scandal-tainted brokerage Nikko Cordial Corp. in a $7.7 billion all-cash deal, the biggest acquisition ever by a foreign company in Japan.
/ Source: The Associated Press

Citigroup Inc. said Friday it successfully took over scandal-tainted brokerage Nikko Cordial Corp. in a $7.7 billion all-cash deal, the biggest acquisition ever by a foreign company in Japan.

Citigroup raised its stake in Japan's third-largest brokerage to 61.1 percent through an offer to buy outstanding stock from shareholders for 1,700 yen ($14.24) each, the company said in a statement.

The tender offer, which expired Thursday, increased Citigroup's stake in Nikko Cordial from 4.9 percent and gives the U.S. bank a strong foothold in the world's second-biggest economy.

In a joint news conference with the head of Nikko Cordial, Citibank Japan Chief Executive Douglas Peterson stressed that Japan is an important market where he sees great potential for growth.

"I'm excited about the challenge of becoming a leading financial services group in Japan," he told reporters at a Tokyo hotel.

"Japan is a priority market. We are very committed, and we are also very hopeful that the Japanese markets will transform and become more innovative and competitive," he said.

Strategies for the partnership are still being hammered out, he said, while denying that any large-scale job cuts at Nikko Cordial were planned.

Last month, Citigroup raised its offer price by 26 percent to dispel shareholder opposition. It was hoping to win at least 50 percent control. A buyout of all shares would have totaled around $13.35 billion.

Citigroup said that 541.2 million Nikko shares were tendered and accepted.

Analysts say the deal is a complementary match because Citigroup, long relatively weak in Japan, can gain a strong presence here through Nikko Cordial, which has more than 100 branches nationwide.

In turn, Nikko Cordial can hope to gain credibility from Citigroup's global brand power.

The takeover also highlights the growth of mergers and acquisitions in Japan as the country emerges from more than a decade of doldrums. M&A activity hit an all-time high last year, and Japan Tobacco recently notched the country's biggest takeover of a foreign company, with its $15 billion buyout of Britain's Gallaher Group, a deal finalized earlier this month.

Nikko Cordial barely escaped removal from the Tokyo Stock Exchange's first section after it was fined 500 million yen ($4.26 million) on charges of falsifying financial statements, the largest fine ever levied by Japan's financial authorities.

Nikko Cordial President Shoji Kuwashima promised to do more to win back customer trust.

"This demonstrates Citigroup's deep commitment to the Japanese market," he said. "We will create a financial group rooted in Japanese culture that also offers strengths each side has to offer."

Financial Services Minister Yuji Yamamoto said the takeover showed that Japanese companies must grow more competitive and demonstrate solid management to survive.

"We are entering a new era of intense competition. Companies that fail to win shareholders' trust in upholding corporate governance and legal regulations will be exposed to the risks of such takeovers," he told reporters in a nationally televised news conference.

The challenge for Citigroup is to boost its brand image in Japan, where local brands dominate the financial sector.

Citigroup has retail banking, investment banking with a joint venture with Nikko, credit card businesses, securities and other operations in Japan. But it remains a tiny presence in Japan in contrast to its giant international status, especially after it downsized its consumer finance operations here earlier this year.

In 2004, Japanese financial authorities yanked Citigroup's private banking license in Japan after accusing it of failing to implement safeguards against money laundering, misleading customers about financial risks, and other violations. The private bank had managed the investments of wealthy individuals.

"We are very pleased to now fully pursue our alliance with Nikko Cordial," Citigroup Chairman and Chief Executive Charles Prince said in a news release. "The successful completion of the tender underscores our focus on seizing opportunities to grow internationally both organically and through targeted acquisitions."

Nikko Cordial's shares opened up 0.5 percent at 1,700 yen ($14.20) on the Tokyo Stock Exchange on Friday, matching Citigroup's offer price. They finished the day at 1,738 yen ($14.5), up nearly 3 percent.