Nikko shares slip as Citi holds firm on bid

By Jonathan Soble

TOKYO (Reuters) - Shares in Japan's Nikko Cordial Corp. 8603.T fell 0.3 percent on Thursday after Citigroup (C.N) said it would not sweeten its $14 billion takeover bid for the brokerage a second time.

Citigroup, which is focusing on expanding its international business, began accepting tenders on Thursday.

Nikko's shares had surged after the U.S. bank raised its offer price by 26 percent earlier in the week, but Japan Chief Executive Douglas Peterson said on Wednesday the new offer was final.

"Our price is full and it's fair and it's firm," he told a news conference. "It will not be raised."

Investors appeared to take Peterson at his word.

Nikko's stock rose 9 yen to within a yen of Citigroup's 1,700 yen offer price immediately after the start of morning trade, then gradually retreated to end down at 1,685 yen.

The benchmark Nikkei average .N225 rose 1.1 percent and the brokerage sub-index .ISECU.T gained 1.85 percent.

"Citigroup has no plans to alter the terms of the offer, even if market conditions change, although it is unclear what it will do if the offer does not succeed," said Hiroyuki Maekawa, an analyst at Deutsche Bank.

One large Nikko shareholder is already set to tender shares, according to Japanese news service Kyodo.

Mizuho Financial Group (8411.T), the second biggest bank in Japan and a holder of about 4.8 percent of Nikko's shares, plans to tender shares, Kyodo said, without specifying whether Mizuho planned to all or some of its Nikko shares.

Citigroup was forced to sweeten its initial bid of 1,350 yen after Nikko escaped delisting by the Tokyo Stock Exchange over an accounting scandal, a development that weakened the bank's leverage against North American investors who had dismissed its offer as too low.

Even before the bourse's surprise decision to let Nikko keep its listing, four U.S. and Canadian investment funds that own about 25 percent of Nikko had complained that Citigroup's first offer undervalued the firm by a third or more.

The funds have not commented on Citigroup's new offer, which still falls short of the 2,000 yen a share that most of them have demanded.

Citigroup, which already owns 4.9 percent of Nikko, is offering to buy all shares and new-share warrants tendered and is aiming for a minimum stake of 50 percent.

Buying the rest of Nikko's outstanding shares would cost 1.578 trillion yen ($13.5 billion), and the purchase price could rise to 1.677 trillion yen including new-share warrants issued as part of stock-option plans.