TOKYO, Japan (Reuters):

Citigroup bid US$10.8 billion for Japan's scandal-hit Nikko Cordial Corp yesterday, hoping to secure its biggest Asian deal and mark its resurgence in the world's second-biggest economy.

Citigroup, the largest U.S. bank but a small player in Japan outside of corporate investment banking, is making a broader effort to revamp its business in Japan, the scene of some of its most painful missteps in recent years.

To make the takeover work, Citigroup must succeed where other foreign firms have failed. Merrill Lynch tried to build a Japanese retail broking business on the ruins of Yamaichi Securities, a Nikko rival that collapsed in 1997, but the business folded a few years later after losses peaked at an estimated US$500 million in 2001.

Small premium

"Citi and Nikko already have a deep relationship so it should be a good cultural fit," said Neil Katkov of Celent, a financial consultancy. "It really puts a foreign player right into the middle of the brokerage industry in Japan."

Citigroup said it would pay a small premium to Nikko's closing price on Tuesday to lift its stake in Japan's third-largest securities firm from just under five per cent to at least 50 per cent.

Citigroup said it would offer 1,350 yen for each Nikko share and would acquire all shares tendered, which would cost it about yen1.253 trillion (US$10.8 billion).

The deal is Citigroup's largest in Asia to date, eclipsing its US$2.8 billion acquisition of South Korea's KorAm Bank in 2004.

The offer price values Nikko at 28 times earnings, compared with 20 at Nomura Holdings Inc and 22 at Daiwa Securities Group Inc. (8601.T), Japan's top two brokerage groups, according to Reuters data.

Shares in Nikko, a full-service retail and wholesale broker that has been weakened by an accounting scandal at its merchant banking arm, jumped 14 per cent to 1,340 yen before the announcement on news that Citigroup was poised to bid.