The Work

May 1, 2009 5:51 PM

Two Years After Buy, Paul Weiss Helps Citi Unload Nikko Cordial

Posted by Zach Lowe

Toby Myerson, cohead of M&A at Paul, Weiss, Rifkind, Wharton & Garrison, has seen the global ascension and fall of Citigroup through the lens of a pair of deals involving the Japanese brokerage firm Nikko Cordial. Almost exactly two years ago, Paul Weiss advised Citi on its deal--two deals in one, in a way--to acquire Nikko for $14 billion, heralded then as a sign that Citi was ready for a massive Japanese expansion; that deal closed in January of last year.

Now, 16 months later, the firm advised Citigroup as the bank, struggling for capital and facing a government stress test, unloaded huge chunks of Nikko to Sumitomo Mitsui Financial Group for $7.9 billion, according to the New York Times. A team from Skadden, Arps, Slate, Meagher & Flom advised Sumitomo, a firm client since the 1990s, according to lawyers on the deal.  The deal may help Citi score better on federal stress tests, according to Forbes, and it raises some cash to repay some of the $45 billion the government has loaned Citi in bailout funds, the NYT says.

Citi will sign a formal alliance with Nikko Cordial allowing Citi to market its investment banking products through Nikko's brokerage units, Myerson says. Citi will also retain Nikko Asset Management and its commercial and investment banking units in Japan, according to the NYT and lawyers on the deal. 

Myerson compared the deal to another recent Citi blockbuster: the January sale of a 51 percent stake in Citi's U.S. brokerage unit, Smith Barney, to Morgan Stanley. In both instances, Citi managed to raise capital while still keeping close ties with the departed subsidiary, Myerson says.

Under Japanese rules, Citi had to "de-merge" the chunks of Nikko it wanted to sell, form them into a new company and then sell that company to Sumitomo, lawyers say. "It was a fairly complex deal," Myerson says. (Perhaps not as complex as the original acquisition. According to Myers, that was the first deal in which a foreign company was allowed--under a new Japanese law--to exchange shares with a Japanese company as part of an acquisition in Japan. That portion of the deal came after a $10 billion tender offer, Myerson says).

David Lakhdhir led the Paul Weiss team along with Myerson and fellow partners Kaye Yoshino, Tong Yu and Jeffrey Samuels. 

The Skadden team included Tokyo-based partners Nobuhisa Ishizuka, Michael Mies, and lead partner Mitsuhiro Kamiya. Also on the deal for Skadden: Intellectual Property partner Rita Rodin Johnston; M&A partners Shaun Lascelles and Gregory Miao; corporate partner Nicholas Norris; and financial institutions partner William Sweet.

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