Shinsei Bank Ltd. has dropped its poison pill defense against SBI Holdings Inc.’s planned offer for the mid-sized Japanese lender, marking the latest twist in the takeover saga.

Tokyo-based Shinsei canceled a planned shareholder vote on the defense measures that was scheduled for Thursday and changed its stance on SBI’s offer to neutral, it said in a statement on Wednesday.

A takeover fight erupted for Shinsei in September when Japan’s biggest online brokerage, led by a maverick financier named Yoshitaka Kitao, launched a rare unsolicited tender offer to increase its stake in Shinsei to about 48%, a level that would give it effective control of the lender without having to go through additional regulatory hurdles.

Shinsei said it would support the bid on two conditions: that SBI raise its offer and scrap a ceiling on the number of shares it will buy, so that all holders could tender. SBI refused to pay even one-hundredth of a yen more. Shinsei moved forward with the poison pill proposal — which dilutes the ownership of hostile acquirers — saying it was the best strategy to extract better terms for existing investors.

In a separate statement on Wednesday, SBI reiterated that it doesn’t plan to change its offer price of ¥2,000 a share or the maximum number of shares it’s seeking. Still, the brokerage has agreed to cooperate to improve Shinsei’s corporate value.

The defense measure’s chances of passing in Thursday’s vote were dealt a blow when people familiar with the matter said that Japan’s government — which owns more than a fifth of Shinsei’s shares — wouldn’t support the proposal.

Shares in Shinsei closed 3.4% in Tokyo on Wednesday.

By dropping the measures, "Shinsei management saves face from what would have been a likely rejection of its poison pill tomorrow,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo. "More importantly the government can escape the dilemma of being in the middle of a hostile takeover in which it can’t be seen to favor one side or the other, but had no way of staying neutral.”

Shinsei plans to hold an extraordinary shareholder meeting in early February to vote on SBI’s proposed director candidates. If shareholders approve, the current Shinsei management will step down, the bank said.

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