Investors reject Citi’s $13.4bn bid for Nikko

The largest shareholder in Nikko Cordial has rejected Citigroup’s increased $13.4bn bid for Japan’s third largest broker.

Harris Associates, the Chicago-based manager that owns 7.5 per cent of Nikko, said Citigroup’s offer of Y1,700 a share was still too low and Nikko Cordial was worth at least Y2,000.

Harris and three other North American funds that collectively own about 27 per cent of Nikko Cordial rejected Citigroup’s original Y1,350 offer.

Citigroup, which already owns 4.9 per cent, raised its offer for the rest last week after the Tokyo Stock Exchange unexpectedly decided not to delist Nikko Cordial’s shares following an accounting scandal.

Two of the other funds that rejected the first offer, Orbis Investment Management and Southeastern Asset Management, also said they wanted Y2,000.

Mackenzie Financial is reported to have indicated a price of between Y1,700 and Y1,800. None have made any public comments about the improved offer.

Citigroup’s bid to take at least 51 per cent of Nikko Cordial was given a boost after it emerged that Mizuho is planning to tender its shares. Mizuho, one of Japan’s biggest banks, owns a 4.8 per cent stake and is believed to have considered a bid for Nikko Cordial of its own.

However, the bank came to the conclusion that competing with Citigroup for Nikko Cordial would be too costly, according to a Mizuho group executive.

Harris’s rejection came as Nikko Cordial said group pre-tax recurring profits for the year to March would be 35 per cent lower than last year and said its annual dividend would be less than half that of last year. The broker expects pre-tax recurring profits to be Y98bn ($830m) compared with Y149.7bn and net profits to fall 9 per cent to Y80bn against Y87.9bn previously.

Nikko Cordial, which was given a record fine by the financial regulator for inflating profits, has seen its business hit by the accounting scandal.

Some of its key clients are believed to be reviewing their relationship with the broker and Canon said on Thursday it was reviewing Nikko Cordial’s role as its main underwriter.

Meanwhile, Nikko Citigroup, the investment banking joint venture between Nikko Cordial and Citigroup, has lost lucrative underwriting mandates due to the scandal.

Nikko Cordial said, however, the lower profits were due mainly to higher costs.

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