Nikko Cordial Corp Stock Market Listing

Nikko Cordial Corp., Japan's third- largest brokerage, will be allowed to keep its stock market listing after an accounting scandal, a reprieve that may force Citigroup Inc. to raise its $10.8 billion bid for the company.

The irregularities didn't merit removing the stock, Tokyo Stock Exchange President Taizo Nishimuro said. Citigroup, Nikko's investment-banking partner in Japan, on March 6 offered to buy the company for 1,350 yen per share, a bid rejected by stockholders with more than a quarter of the company's equity.

Revelations that former executives inflated profit in 2004 left the 89-year-old brokerage in disarray and gave New York-based Citigroup an opportunity to jumpstart its Japan expansion by buying Nikko on the cheap. The bourse's decision may prompt more investors to hold out for a higher offer after the four biggest shareholders demanded more money.

``Nikko's shares may get a boost, making investors reluctant to sell to Citigroup'' at the offer price, said Yoji Takeda, who helps manage $900 million at RBC Investment (Asia) Ltd. in Hong Kong.

The four top shareholders -- Chicago-based Harris Associates LP; Bermuda-based Orbis Investment Management Ltd.; Southeastern Asset Management Inc. of Memphis, Tennessee; and Toronto-based Mackenzie Financial Corp. -- have rejected Citigroup's offer.

Together, the four funds control almost 27 percent of Nikko, according to Bloomberg News calculations. Citigroup owns 4.9 percent and needs another 45.2 percent to reach its goal of gaining a majority of the shares.

Deal Multiples

Harris, Orbis and Southeastern said Nikko's shares are worth at least 2,000 yen per share. Citigroup's bid is almost 10 percent lower than Nikko's closing price on Dec. 15, the last trading day before the accounting irregularities were disclosed.

The offer values Nikko at about 1.62 times book value, compared with 2.3 times for Nomura Holdings Inc., Japan's largest brokerage. Daiwa Securities Group Inc., the No. 2, trades at 2.41 times book value, according to data compiled by Bloomberg.

Nikko, whose shares began trading in 1961, would have been the largest Japanese company ever to be delisted for falsifying accounts. The stock peaked at 6,300 yen on April 20, 1987. It declined in 11 of the past 17 years as Japanese stocks endured a decade-long bear market.

Kanebo Ltd., a cosmetic and food producer, had its shares removed in 2005 after the company said former management overstated earnings by 210 billion yen over five years.

`Political Decision'

The exchange also delisted Livedoor Co., an Internet portal, and Seibu Railway Co., a railway and resort operator, in the past three years. Prosecutors filed criminal charges against the founders of Livedoor and Seibu. No charges against former Nikko managers have been filed.

Japan's Securities and Exchange Surveillance Commission on Dec. 18 said Nikko overstated profit in documents related to a corporate bond sale in November 2005. Since then, six top executives have quit and Nikko has sued three of them.

Nishimuro said Nikko's offense didn't meet its criteria for delisting a stock. The exchange has asked the company to file a ``business compliance report'' by March 26, he said.

``The exchange may have made a political decision after considering the economic and social impact of a delisting,'' Takeda said.

source:www.bloomberg.com