Citigroup offers to buy troubled Japanese brokerage Nikko Cordial

Citigroup offers to buy troubled Japanese brokerage Nikko Cordial
TOKYO: Citigroup Inc. said Tuesday it has offered $10.8 billion for Japan's ailing brokerage firm Nikko Cordial. This will be the biggest ever acquisition of a Japanese security firm by a foreign company.

Citigroup expects the deal to help it realise its ambitions in the world's second-biggest economy, where it had to beat a hasty retreat earlier on account of regulatory problems..

Citigroup will float a tender offer for Nikko Cordial's shares in the next one week in order to increase its stake in the brokerage firm to over 50 per cent from the current 4.9 per cent. The group said it will pay 1,350 yen for each Nikko Cordial share, which represents a marginal premium of 0.75 per cent over the share's closing Tuesday. The announcement, however led the shares to gain 14 per cent on the Tokyo Stock Exchange.

The deal, if it goes through, will be Citigroup's largest in Asia, outclassing its $2.8 billion buyout of South Korea's KorAm Bank in 2004. This will also be the first under chief executive Charles Prince.

Regulators in Japan had shut down a private banking firm owned by Citigroup over compliance problems.

Citigroup and Nikko are involved in a joint venture investment banking firm, Nikko Citigroup. Citigroup had at one time possessed nearly 25 per cent of Nikko Cordial shares as it helped the brokerage to come out of a financial crisis. It had later sold most of the holding.

Nikko Cordial said Tuesday its board has approved the offer. The brokerage has 109 retail branches and a market value of 1.3 trillion yen.

Nikko Cordial is facing several problems, including a possibility of the Tokyo Stock Exchange delisting it because of accounting irregularities. The firm had admitted it had forged documents and booked about $300 million in excess profits over two years. It has said it is planning sort out the issues by mid-March.

When Japanese regulators had asked Citigroup to wind up its operations in Japan, the U.S. Federal Reserve had ordered in March 2005 that the company should stop making acquisitions until it tightened internal controls. The ban was lifted in 2006 and the group was allowed to conclude deals in Central America, Turkey, China and now Japan.