Maverick financier Yoshitaka Kitao has scored a major victory in his bid to take effective control of a mid-sized lender and shake up the ranks of Japanese finance.

Shinsei Bank Ltd. canceled a shareholder vote on a poison pill defense against a takeover bid from Kitao’s SBI Holdings Inc. that was scheduled for Thursday, and shifted its stance on the offer to neutral. For its part, SBI reiterated that the online brokerage won’t change the price floated to raise its stake to 48%, rebuffing Shinsei’s attempt to extract more favorable terms for existing investors.

The reversal comes just a day after people familiar with the matter said the government, Shinsei’s largest shareholder, planned to withhold support for the poison pill, tipping the scales in the tussle between the two firms. Kitao has publicly criticized Shinsei managers and pledged to remove them once his company succeeds with its tender offer.

A takeover fight erupted for Shinsei in September when SBI launched a rare unsolicited tender offer to increase its stake to a level that would give it effective control of the lender without having to go through additional regulatory hurdles.

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.

Shinsei Bank Ltd. cancelled a shareholder vote on a poison pill defense against a takeover bid from SBI Holdings Inc.  | BLOOMBERG
Shinsei Bank Ltd. cancelled a shareholder vote on a poison pill defense against a takeover bid from SBI Holdings Inc. | BLOOMBERG

"I am surprised and disappointed that Shinsei Bank’s board of directors were unable to find a better bid for the bank,” said Jamie Rosenwald, a co-founder and portfolio manager of Dalton Investments, a $3.4 billion (about ¥393 billion) American money manager that owns about 3% of Shinsei for clients. "Given their failure, I am not surprised that the board intends to step down at the February 2022 EGM.”

Shinsei had 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.

By dropping the measures, "Shinsei management saves face from what would have been a likely rejection of its poison pill,” 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.”

While Shinsei’s reversal has cleared the way for a successful SBI bid, obstacles remain.

In a note published before Shinsei dropped the poison pill, SMBC Nikko Securities Inc. analyst Masahiko Sato said even if the measures were voted down, SBI might not be able to secure enough shares to raise its stake to 48% if activist shareholders and some passive funds don’t tender their shares.

City Index Eleventh, a fund tied to activist investor Yoshiaki Murakami, has increased its joint stake in Shinsei in recent weeks.

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