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Investors Rush to Buy Nikko After Citigroup Raises Its Bid

Citigroup launched its sweetened tender offer for Japan's Nikko Cordial on Wednesday and insisted its $13.6 billion bid is final, even as Nikko's stock again threatened to overshoot the bank's price.

Citigroup confirmed its offer of 1,700 yen a share and said it would accept tenders for 30 trading days beginning on Thursday. It had raised its offer on Tuesday from 1,350 yen.

"Our price is full and it's fair and it's firm," Citigroup Japan CEO Douglas Peterson told a news conference. "It will not be raised."

Management at Nikko has agreed to the Citigroup deal, which would be the biggest-ever foreign buyout of a Japanese company.

It would help Citigroup Chief Executive Charles Prince move toward his goal of expanding the bank's foreign business to 60% of revenue from about 45% now.

Nikko stock jumped by its 200-yen daily limit ahead of the announcement to end at 1,690 yen. It had traded above Citigroup's previous bid since the takeover plan was announced early last week.

Peterson was addressing objections by four North American investment funds that hold large Nikko stakes, and say Japan's third-biggest securities firm is worth at least 2,000 yen a share.

The funds were not immediately available to comment on Citigroup's new offer.

Citigroup said it expects the purchase would not affect earnings per share in 2007, and add to earnings thereafter.

Analysts said the bank could still face pressure to cough up more cash but would be reluctant to match the holdouts' asking price.

"The TOB price could be raised again, but we still think the 2,000 demanded by the four major shareholders will prove too pricey," said Natsumu Tsujino, an analyst at JPMorgan.

Hiroyuki Maekawa, a brokerage analyst at Deutsche Bank, said Citigroup's offer fell within his fair-value range of roughly 1,400-2,100 yen.

"We anticipate that a rise in the share price above 1,700 yen could prompt changes in Citigroup's and Nikko's plans, including another increase in the offer price, a lowering of the target number of acquired shares, or withdrawal of the offer," he said in a note to clients.

A flood of buy orders for the stock on Wednesday meant that no shares were actually sold. On Thursday, Nikko's daily limit will expand to 300 yen, giving a price ceiling of 1,990 yen.

Citigroup was forced to sweeten its initial offer after the Tokyo Stock Exchange decided not to revoke Nikko's share listing over an accounting scandal.

Goldman Sachs raised its rating on Nikko's shares to "buy" from "neutral" and hiked its 12-month price target to 1,700 yen from 1,200 yen. Lehman Brothers raised its rating to "overweight" from "equal weight" and upped its target to 2,100 yen from 1,350 yen.

Citigroup's offer represents a 33% premium over Nikko's average share price over the last month.

It is in line with the valuation of Nikko's peers at more than two-times book value per share, according to U.S. investment firm Dalton Investments, which owns Nikko stock.

Citigroup is offering to buy all shares tendered and is aiming for a minimum of 50%. The bank already holds a stake of just under 5%. Buying the rest of Nikko would cost 1.578 trillion yen ($13.59 billion).

The bank now generates less than 5% of its income in Japan and has suffered a series of setbacks in the country, including the closure of its private banking business by regulators in 2004 over a slate of compliance failures.

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