Citigroup said it would buy out minority shareholders in scandal-hit Japanese brokerage Nikko Cordial for $4.6 billion, as part of the financial giant's push into the world's second-largest economy.
Citigroup spent about $8 billion to buy a 68% stake in Japan's third-largest securities firm earlier this year, its biggest-ever Asian acquisition.
Since then, the U.S. bank has been increasing its presence in Japan and looking to repair its image after it fell foul of Tokyo regulators.
Citigroup, the largest U.S. bank by market value, said it would offer its own shares to buy the remaining 32% it does not own in Nikko.
The deal may be the first use of a new law in Japan that allows a foreign firm to use its own shares as currency when buying a Japanese company.
Citigroup is one of several foreign financial firms, such as London-based HSBC Holdings , looking to target Japan's millions of wealthy individuals and the country's estimated $13 trillion in household financial assets.
The U.S. bank has been expanding its Japanese retail branch network and making efforts to retool its image, which was tarnished when regulators shut down its private banking operation three years ago.
Owning Nikko Cordial gives the U.S. firm full control of more than 100 brokerage outlets and a name well known to domestic investors.
"This is no small event. Foreign capital has ventured into the Japanese financial sector in other forms before, but this is one of Japan's big three brokerages," said Toru Kitani, senior investment manager at Sompo Japan Asset Management.
"In the midst of all this talk of foreign houses losing interest in Japan, moving their headquarters to Singapore and the like, it is a major commitment to the market and will spur expectations of further realignment in the financial sector."
Citigroup said it would list its shares in Tokyo ahead of the deal, which it said would be neutral to earnings per share in 2008.
"We believe it's quite important that Citigroup have a presence in this market and that we take advantage of full ownership," Douglas Peterson, Citigroup's chief executive in Japan, told a news conference.
While foreign firms such as Merrill Lynch and UBS are currently listed in Japan, overseas stocks have largely failed to draw investors and rarely see active trade in Tokyo.
Citigroup launched its buyout bid after Nikko was rocked by an accounting scandal earlier this year that hurt business at core retail unit Nikko Cordial Securities and investment banking joint venture Nikko Citigroup.
Citigroup said Nikko minority shareholders will receive Citigroup shares with an expected value of 1,700 yen, a 16% premium to Tuesday's closing price of 1,462 yen and the same price Citigroup paid in a tender offer earlier this year.
That would value the 32% stake at about 530 billion yen (US$4.6 billion).
The number of Citigroup shares to be exchanged for Nikko Cordial shares will be determined later using an average trading price during an agreed valuation period, Citigroup said.