Hankyu Holdings Inc. President Kazuo Sumi on Friday ruled out the possibility of his firm changing its public tender offer for Hanshin Electric Railway Co. shares and said it would no longer negotiate with Murakami fund, the top Hanshin shareholder, on the issue.

Sumi made the remarks to reporters in Tokyo after the media reported that prosecutors are investigating possible insider trading by the Murakami fund involving the trading of Nippon Broadcasting System Inc. shares last year.

Hankyu is trying to acquire a minimum 45 percent stake in Hanshin so the two firms can integrate. The Murakami fund, headed by bureaucrat-turned-financier Yoshiaki Murakami, has a 47 percent stake in Hanshin and has been haggling with Hankyu over the share price.

Observers said Hankyu has gone on the offensive as the fund is losing its bargaining power due to the reports that it may have violated the Securities and Exchange Law.

The investigation “has made it easier for Hankyu to carry out the tender offer,” said Ikuo Yasuda, a mergers and acquisitions pioneer in Japan and chairman and CEO of Pinnacle Inc.

Hanshin shares closed Friday at 931 yen, down 10 yen from the previous day. The fall has made the 930 yen per-share Hankyu offering price more attractive to the Murakami fund, Yasuda said.

Meanwhile, Hanshin Electric Managing Director Kazuyoshi Nawata voiced concern that the probe into the Murakami fund may have some impact on Hankyu’s tender offer, which did not come as a surprise.

“There have been various stories (in the media about Murakami’s dealings), and it finally seems the time (for an investigation) has come,” Nawata told reporters in Osaka.

Both Hankyu and Hanshin issued separate statements Friday, saying the two sides will continue to try to integrate.

“The report at this time is not something that impairs the corporate value of Hanshin,” Hankyu said in its statement. “Therefore, our company will continue the tender offer to aim for managerial integration according to our fixed policy.”

Hanshin said that since it had already approved Hankyu’s tender offer, it will continue talks on the integration.

The holding company of Hankyu Corp., a Kansai-region railway, wants to obtain all the shares in its rival through the tender offer, which ends June 19. If it succeeds, Japan will see the first merger of major private railways in the postwar era.

On Friday morning, the Tokyo stock market saw a flurry of sell orders for firms held by the Murakami fund. The probe revelation sent shock waves through the market, where players feared that the investigation into the fund may further aggravate already bearish market sentiment.

However, stock prices recovered in the afternoon, with the bellwether Nikkei average of 225 blue chips closing at 15,789.31, up 285.57 points from the previous day.

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