Oji Paper Co. has proposed freezing a hostile takeover bid for Hokuetsu Paper Mills Ltd. if Hokuetsu withdraws its planned issuance of new shares to Mitsubishi Corp., sources said Saturday.

Hokuetsu, the country’s sixth-largest paper company, however, rejected the compromise proposal by Oji, the No. 1 Japanese paper producer, when the two firms held a top-level meeting Friday, the sources said.

Oji President Kazuhisa Shinoda and Chairman Shoichiro Suzuki met with Hokuetsu President Masaaki Miwa for the first direct talks between the two firms since Oji’s tender offer announcement last Sunday, they said.

Shinoda and Suzuki told Miwa that Oji would freeze the tender offer for Hokuetsu, set to begin in mid-August, if Hokuetsu drops its planned Aug. 7 private issuance of new shares to major trading house Mitsubishi, the sources said.

Hokuetsu cannot withdraw the capital increase plan because the company’s board has already approved it, Miwa was quoted as saying.

Hokuetsu intends to use the funds from the new share allotment to help finance a plan to beef up production facilities in Niigata Prefecture.

Industry sources said Oji is concerned that Hokuetsu’s plan may cause a glut on the paper market and push prices down, and believes this would be avoided if Hokuetsu withdraws the capital increase plan, the sources said.

Oji privately floated a business integration proposal to Hokuetsu on July 3. In response, Hokuetsu announced July 21 it would issue 50 million new shares to Mitsubishi for some 30 billion yen, or 607 yen per share, on Aug. 7 and form a business tieup with the trading house.

Oji then announced last Sunday it would conduct a tender offer for about a month beginning in mid-August to purchase a 50.1 percent stake in Hokuetsu in terms of voting rights for 70 billion yen. Hokuetsu has rebuffed the buyout bid and Mitsubishi has said it will go ahead with the share purchase.

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