Nikko Cordial: Southeastern Asset Management Offers to Sell for 1900 Yen

Southeastern Asset Management has joined investors in pressuring Citigroup (C) to raise its $13.4 billion takeover offer for Nikko Cordial (NIKOY.PK). Southeastern placed an offer on the Tokyo Stock Exchange to sell its 6.6% stake in Japan's third-largest brokerage for 1,900 yen ($16.01) per share, above Citigroup's 1,700 yen bid, the company said today in an e-mailed statement.

Sell orders for other stakes in Nikko have also been placed at this higher price, meaning that at least 20% of Nikko stock has been offered at 1,900 yen in the last few days. From the linked Reuters report:

Some analysts have described the shareholders' attempts as largely symbolic since other sellers are offering the stock at a lower price. However, one Citigroup investor said the shareholders may succeed in getting a higher price.

"I'm assuming that if Citigroup wants to get the deal done, they are going to have to raise their bid, which then becomes a horrible deal for Citi," said Citigroup shareholder William Smith, chief executive of SAM Advisors LLC. "You've got shareholders who want more. Citi does not want to pay more, and I think as you get closer to a vote then the two sides may have to contract and meet somewhere."

Reuters refers to some Nikko shareholders, requesting anonymity, as saying that with more than 20% of the company's stock up for grabs, the brokerage could now attract interest from other possible bidders.

And, apparently, at least one of Nikko's major shareholders feel the bidding process wasn't optimal:

"The process which led to the tender offer did not allow interested parties an opportunity to consider a bid for Nikko Cordial," said Hugh Gillespie, legal counsel for Orbis. "In the absence of an open process, we considered that we had no choice but to allow the market to assess the appropriateness of the tender offer."

I think the odds are against the major shareholders gaining the higher price. At least as it looks now. But this thing has been fluid -- and the last chapter hasn't yet been written.

Comments

[Lance]

Fluid it has been. But if I were Citi, I'd pay the roughly 5 yen per share and cancel the tender. The approximately 6M shares that traded above the tender price today would be torched.

Let's face facts here: We are going into a US earnings season that doesn't hold too much promise. Nomura has "underperformed&q... Nikko, and Daiwa has vastly underperformed Nikko, since the date before the scandal.

Nikko is "hot" only because Citi says it's hot. If Citi walks, a lot of people have egg on their faces. If I were Citi, I'd say, "Okay, let's see what the market without a tender offer brings."

[Lance]

Nikko holders ... my advice is to SELL NOW. Insanely, the stock is trading fractionally above the tender price. This is a bid you should not refuse.

Take a look at the Brokers sub index! Take a look at Nomura's price, or Daiwa's price.

Then ask yourself if Mr. Prince is worth half of his salary.

There is an excellent chance that Citi will walk from this tender. Well ... excellent if they have anybody with any market sense, but given Citi's stock performance over the past four years relative to ... anything ... that may be a stretch.

At least tender. Then pray.

[Lance]

And while SAM tries to make a market where there is none ... way above the tender, which is way above where the market would be trading the stock right now if the tender wasn't supporting it ... Harris & Associates has apparently been furiously dumping into the real market, something you would apparently never read here unless I posted it. Oops, what a difference a Friday makes, as Nikko is back trading smack on the tender price.

Honor among thieves? Chuckle.

Quote ... The process which led to the tender offer did not allow interested parties an opportunity to consider a bid for Nikko Cordial," said Hugh Gillespie, legal counsel for Orbis. "In the absence of an open process, we considered that we had no choice but to allow the market to assess the appropriateness of the tender offer ... end Quote.

What an absurd claim. Anyone can make a bid on Nikko at any time. The paragraph above is simply coming from outer space. Come to think of it, "Orbis" does sound a little bit like "orbit", doesn't it? Not enough oxygen up there?

The problem of course is Nikko Citigroup, the brokerage subsidiary that won't go away, which is 100 percent owned by the Nikko-Citigroup combination. Anyone offering to step in here as a hostile has to deal with that reality, not to mention dealing with Nikko's board, which is already on record as supporting the tender.

The market evaluates "the appropriateness of the tender" every single day that it is open. Right now the market is saying that SAM et al are coming from left field, ridiculously trying for more than the fat windfall gains they already stand to make after the TSE made their day by deciding Nikko was "too big to fail", something that I said would happen in this space months ago.

But the market is also saying that, the tender notwithstanding, things don't exactly look all that rosy for Japan's "Big Three" shoukengaisha right now. In fact, if Citi walks, Nikko probably trades at about 1550 the next day, maybe lower. I would not be surprised if it went limit down the first day. Then those shares offered at 1900 will look even more ridiculous than they already do.

That 2-yen dividend this past quarter could actually price the stock at less than 1000. Yes, I agree that it's a 2000-yen stock. Someday. More than likely during the next business cycle. Time is money.

Historically, Nikko has traded at a discount to Daiwa. Given the reverse two-for-one in 2005, lets say they trade at the same level, give or take. Daiwa closed at about 1320 yesterday. Anybody who thinks Citi is getting a good deal at 1700 in this market needs a shrink. Anybody who thinks Citi will pay more assumes that Mr. Prince is an absolute dummy, and they may be right, but for the wrong reason. Anybody who thinks a hostile bidder is coming in at a higher tender is simply wishing, not reasoning.

[Lance]

As of today, January 11, 2008, Nomura is trading at a discount to the Citi-bid-supported Nikko.

Chuck Prince was/is a moron. I rest my case.

[Lance]

Oh, and let me add, I was plenty happy to give Chuck my shares last spring at 1700.

Who pays these fools?