Citigroup bids $10.8 bln for broker Nikko Cordial
TOKYO/NEW YORK (Reuters) - Citigroup Inc. (C.N) bid $10.8 billion for troubled Japanese securities firm Nikko Cordial Corp. 8603.T on Tuesday, as the largest U.S. bank looks to return to prominence in a country where it has suffered big losses.
The purchase would be the largest foreign takeover of a Japanese company, eclipsing Vodafone Group Plc's (VOD.L) $7.6 billion buyout of Japan Telecom and mobile unit J-Phone in 2001.
The acquisition of Japan's third-largest securities firm would also be Citigroup's biggest purchase since its $12.5 billion takeover of Mexico's Grupo Financiero Banamex-Accival in 2001 and its largest purchase in Asia.
It would be Chief Executive Charles Prince's largest purchase. Adding Nikko would move Prince closer to his goal of generating 60 percent of profit outside the United States, amid calls from many investors to boost profit and revenue faster.
"We believe Nikko will be the cornerstone of our business in Japan," said Michael Klein, Citigroup's co-president of corporate and investment banking, in an interview. "Japan is a growing market and a changing market, which creates opportunity for us."
Nikko had been hit by an accounting scandal at its merchant banking arm. It has admitted to forging documents and booking about $300 million in excess profit over two years. The Tokyo Stock Exchange has been deliberating whether to delist the firm.
Citi, which already owned 4.9 percent of Nikko, said it plans to boost the brokerage's revenues through measures, including combining Citigroup retail banking and credit card businesses with Nikko's retail brokerage business.
A spokeswoman said Citi plans to retain the Nikko brand for brokerage. Citi's largest retail brokerage business is its mainly-U.S. based Citi Smith Barney operation, which has over 600 offices.
It also hopes to cut costs by combining technology and administrative support services. Nikko has 109 retail branches.
Citigroup said it will offer 1,350 yen for each Nikko share, a small premium to their closing price on Tuesday. If all shares were tendered, the cost could be as much as 1.253 trillion yen. Nikko Cordial ended Tuesday with a 1.3 trillion yen market value.
The price values Nikko at 28 times earnings, compared with multiples of 20 at Nomura Holdings Inc. (8604.T) and 22 at Daiwa Securities Group Inc. (8601.T), Nikko's larger rivals, according to Reuters data.
Nikko shares jumped 14 percent before the announcement on news Citigroup was poised to bid.
Citi's shares were up 94 cents, or 1.9 percent, at $50.19 in early afternoon trading on the New York Stock Exchange, turning in one of the top performances for bank shares during the session.
Citi expects the deal to boost earnings.
LOSSES AND SCANDALS
Citigroup has faced difficulty in Japan before.
In January, it said it lost $368 million in the fourth quarter after new laws forced it to repay loan interest charges that were retroactively deemed excessive.
And in 2004, regulators closed down its Japanese private bank for violations including loose money laundering controls.
Citigroup and Nikko share control of an investment banking joint venture, Nikko Citigroup Ltd.
New York-based Citigroup had owned as much as 25 percent of Nikko Cordial after bailing it out of a 1998 financial crisis.
"Citi and Nikko already have a deep relationship so it should be a good cultural fit," said Neil Katkov of Celent, a financial consultant. "It really puts a foreign player right into the middle of the brokerage industry in Japan."
A successful acquisition would contrast with failures by other foreign companies seeking to make inroads in the world's second-biggest economy.
Merrill Lynch & Co. Inc. MER.N, for example, tried to build a Japanese retail broking business on the ruins of Yamaichi Securities, a Nikko rival that collapsed in 1997. The business folded after losses peaked at about $500 million in 2001.
NOT WAITING FOR DELISTING
Citigroup might have scooped up Nikko more cheaply had it waited for a delisting, but analysts said that strategy would have carried risks.
They said Nikko clients and staff might have abandoned the firm, while private equity funds might have tried to buy Nikko's profitable mutual funds unit and acquire assets in its merchant banking portfolio.
Asked why Citigroup did not wait for a delisting, Klein said the bank wanted to make sure employees, clients, shareholders and regulators were treated in a way that would enhance Nikko's long-term reputation.
He declined to discuss possible layoffs.
"Nikko Cordial is a fine organization, where the employee base is a critical part of its ongoing future," Klein said. "Our goal here is to grow the business."
($1=116.52 Yen)
(Additional reporting by Jonathan Stempel in New York, and Edwina Gibbs, Eriko Amaha and Nathan Layne in Japan)
