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Another Nikko Holder Joins the Tender Above Citi Bid

A major shareholder of Japanese brokerage Nikko Cordial said on Tuesday it would join Orbis in tendering Nikko stock for sale at 1,900 yen per share, above Citigroup's takeover offer of 1,700 yen.

David Herro, a fund manager at Harris Associates, told Reuters his firm would follow Orbis Investment Management, which said on Monday it would place a sell order on the Tokyo Stock Exchange for its roughly 5.8% stake at 1,900 yen.

"We are going to do the same thing," said Herro, adding that his firm will tender roughly 5 percent for sale at 1,900 yen when the Tokyo market opens on Wednesday. The move could be a way of "getting a price closer to what we think it's worth," Herro added.

By offering to sell their Nikko stakes on the open market at a higher price, the shareholders have increased pressure on Citigroup to raise its roughly $14 billion bid for the Japanese broker.

Citigroup declined to comment.

Orbis said the market should decide what Nikko's stock is worth, but some analysts said the move is not likely to succeed because the stock is on offer at a price well above its market value.

Shares in Nikko edged up 0.1% to close at 1,686 yen on Tuesday.

Following the Orbis announcement on Monday, sell orders for 56.5 million Nikko shares -- the size of Orbis's stake -- at 1,900 yen each were entered on the Tokyo exchange before the start of trade on Tuesday, a trader at a Japanese brokerage said. Separate sell orders for 14.4 million Nikko shares were also placed at the same price shortly before the closing, he said.

Scandal

Herro said sell orders for such a quantity of Nikko stock may provoke interest from some other potential bidder for Nikko.

"We are encouraged that other significant shareholders appear to share our view that in the circumstances of this transaction, the market should be allowed to determine the true value of Nikko Cordial and are taking steps we believe will achieve that result," said Hugh Gillespie, Orbis's legal counsel, on Tuesday.

Last month, Citigroup began accepting tenders for its 1,700 yen per share takeover bid and said it would not increase its bid a second time. Its original offer valued Nikko at 1,350 yen per share. The tender closes on April 26.

Citigroup raised its bid price after Nikko escaped a possible delisting by the Tokyo Stock Exchange over an accounting scandal. The stock's continued listing weakened the U.S. bank's leverage against North American investors, who had dismissed its offer as too low.

Citigroup, the largest U.S. bank, already holds roughly 5% of Nikko and is offering to buy all shares tendered as it aims for a minimum stake of 50%.

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

One major Nikko shareholder, Mizuho Financial Group, will tender all of its shares in Nikko to Citigroup, a source close to the matter said on March 16, boosting the chances the takeover bid will succeed.

Mizuho Corporate Bank, Mizuho Financial Group's corporate lending arm, holds a 4.8% stake in Nikko, which agreed to be taken over by Citigroup after its accounting scandal led to a downturn in business and an executive shake-up.

One other big shareholder of Nikko has also said recently the brokerage is worth a lot more than Citigroup's offer.

Southeastern Asset Management, which controls about 6.6%, said on March 23 it increased its appraisal of Nikko's value above its initial assessment of 2,000 yen per share.