The Wall Street Journal-20080119-Credit Crunch- Citigroup Will Pursue Nikko Buyout- Minority-Holder Deal At Brokerage in Japan Is Valued at --36-5 Billion
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Credit Crunch: Citigroup Will Pursue Nikko Buyout; Minority-Holder Deal At Brokerage in Japan Is Valued at $5 Billion
TOKYO -- Fresh from raising $12.5 billion in capital to help it cure a subprime-loans hangover in the U.S., Citigroup Inc. on Friday plowed ahead with plans to buy out minority shareholders in its Japanese brokerage unit Nikko Cordial Corp., in a share-swap deal valued at $5 billion.
Citigroup said it will pay Nikko Cordial shareholders the equivalent of 1,700 yen, or $15.94, of its stock for each Nikko share they own. Working out at 0.602 Citigroup share for each Nikko share, that overall headline price per Nikko share is in line with plans Citi announced for its 68%-owned Japanese brokerage firm Nov. 14.
The move ends some doubts about Citigroup's overseas strategy as it seeks to fix subprime-related problems. But a slide in Citigroup's share price brought on by those subprime problems since the deal was first agreed upon means the U.S. bank now has to pay more in its own stock for each share in Nikko than originally intended.
Based on its volume-weighted average price on the New York Stock Exchange from Tuesday to Thursday, Citigroup said the average price it used to set the share-swap ratio was $26.35. When it signed the deal to buy out Nikko minority shareholders in October, Citigroup shares were about 37% higher.
The deal could have been called off if the average Citigroup share price had fallen below $22 during the swap-setting window. With Citigroup's stock under pressure as it reported on Monday a fourth- quarter loss of $9.83 billion after booking some $18 billion in write- downs and credit costs, a collapse of the Nikko deal was possible.
Citigroup's future strategy and its share-price moves have become a focus of increasing concern for Nikko's minority shareholders. The U.S. bank paid more than $10 billion to buy its controlling stake early in 2007, with plans to develop its retail network and reel in Japan's traditionally thrifty savers, with some $13 trillion salted away in personal assets, much of it in low-yielding bank accounts.
But after Citigroup became ensnared in the subprime-lending turmoil last year, its own value slumped and its chief executive, Charles Prince, stepped down, leaving some Nikko minority holders wondering if shares in the U.S. bank under the agreed terms represented the best value.
Some investors questioned the plan at a December meeting, describing the offer of 1,700 yen as low and querying the validity of Citigroup's ambitions in a country where cultural differences can hamper foreign companies' progress.
Citigroup's top banker in Japan, Douglas Peterson, brushed off those concerns at the time, saying "Citi has had a presence in Japan for over 100 years and a partnership with Nikko for the last nine years." Mr. Peterson said the group will continue to respect Japan's culture and corporate governance while investing more in the Japanese market and Nikko to build a business platform.
Nikko shares fell 3.8% to close at 1,606 yen on the Tokyo Stock Exchange Friday as the company lost ground amid Citigroup's troubles this past week.
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Atsuko Fukase and Kazuhiro Shimamura contributed to this article.
