Citigroup has acquired 61% of Japanese brokerage Nikko Cordial for $7.7 billion (¥920 billion) in cash, its largest-ever Asian acquisition. Several institutional investors with large stakes in Nikko opposed Citigroup's ¥1,700/share bid but were unable to block it outright. In order to merge or divest units of the company without the approval of shareholders, Citigroup will have to raise its stake to 2/3. "We couldn't purchase all outstanding shares but we will look to increase our holdings,'' Citigroup said. The bank also indicated it might attempt to make Nikko, Japan's third-largest brokerage, a wholly owned subsidiary, a prospect that gave Nikko's shares a 2.8% boost to close at ¥1,738. Nikko made a net profit of ¥78.12 billion in the fiscal year ended March 31, down 11% from the year before. Citigroup will now be able to expand its Japanese investment banking business through its JV with Nikko and offer wealth management services to Nikko's clients, who have a combined ¥40 trillion in assets. In December, Nikko was accused of inflating its earnings, precipitating a 30% drop in its stock price by February 1. Nikko shares closed at 1,179 yen on March 5, one day before Citigroup made its original ¥1,350/share bid.
Sources: Reuters, Bloomberg
Commentary: Citigroup Plays Japanese Poker • Nikko Cordial: Citigroup May Fail to Gain Full Control Of Company • Nikko Cordial: Shareholders Join Campaign Against Citigroup's Takeover Bid
Stocks/ETFs to watch: Nikko Cordial (OTC:NIKOY), Citigroup (NYSE:C). Competitors: Mitsubishi UFJ Financial Group (NYSE:MTU), Nomura Holdings (NYSE:NMR), Daiwa Securities Group (OTC:DSECY). ETFs: iShares S&P Global Financial Index Fund (NYSEARCA:IXG), iShares Dow Jones US Financial Services (NYSEARCA:IYG), Financial Select Sector SPDR (NYSEARCA:XLF)
Conference call transcripts: Citigroup Q1 2007
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