• Kyodo, Bloomberg

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Shinsei Bank on Thursday decided to reject a tender offer from major online financial group SBI Holdings Inc., raising the prospect of a rare hostile takeover bid in the Japanese financial sector.

The standoff between the firms has escalated since SBI launched an unsolicited tender offer in early September in an attempt to raise its stake from 20% to 48%.

Shinsei Bank officially decided to reject a tender offer from major online financial group SBI Holdings Inc. | KYODO
Shinsei Bank officially decided to reject a tender offer from major online financial group SBI Holdings Inc. | KYODO

Shinsei is planning to seek approval for its plan to launch a defense against SBI in an extraordinary shareholders meeting next month. The decision was announced after Shinsei held a board meeting earlier Thursday.

At the board meeting, Shinsei decided on a counterproposal, urging SBI to remove the limit on its share purchase — a condition the financial group is unlikely to accept, as under Japanese law, obtaining a majority stake in a bank needs regulatory approval.

If the tender offer is successful, SBI aims to replace some or all of the current Shinsei management, which has failed to bolster the bank’s profitability, and pave the way for the repayment of massive public funds the bank’s predecessor received two decades ago.

In late September, SBI acquiesced to Shinsei and extended the tender offer period until Dec. 8 from Oct. 25 after the bank threatened to launch part of its defense measures.

Shinsei’s planned defense, pending shareholder approval, is to issue new shares to existing shareholders to dilute SBI’s holdings.

SBI is offering ¥2,000 per Shinsei share, higher than around ¥1,900 the stock was trading at on Thursday.

The focus of the shareholders meeting, to be held on Nov. 25, will be on whether SBI, which has criticized Shinsei’s defense measures as “management protecting its own interests,” can secure the support of shareholders.

The online financial group is aspiring to become the fourth Japanese megabank — after MUFG Bank, Sumitomo Mitsui Banking Corp. and Mizuho Bank — with its CEO Yoshitaka Kitao calling for the reorganization of regional banks in Japan.

It’s not how things are usually done in Japan. But Kitao, 70, already has a reputation for shaking things up after building the country’s largest online brokerage with bold measures such as slashing trading fees.

The finance veteran sees the acquisition of a bank as key to expanding his sprawling businesses, a person familiar with his thinking said, asking not to be identified speaking on a private matter.

“SBI already has a reputation as a self-assertive investor willing to go slightly beyond traditional ways of doing things in Japan in order to advance its business growth,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo. The firm was “clearly careful to engage regulators,” he said.

Following the 1998 collapse of Shinsei’s predecessor the Long-Term Credit Bank of Japan, the bank received around ¥370 billion in taxpayer money. The government still owns around 20% of Shinsei.

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