Shinsei Bank on Thursday decided to reject a tender offer from major online financial group SBI Holdings Inc., setting the stage for a rare hostile takeover attempt in the Japanese financial industry.

Shinsei criticized SBI's plan to effectively control the management without acquiring a majority stake, warning that it would be "detrimental" to the remaining shareholders because their investments may be used for the benefit of SBI.

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 percent to 48 percent.

Shinsei is planning to seek approval for its plan to launch a defense against SBI at an extraordinary meeting on Nov. 25. The decision was announced after a board meeting earlier Thursday.

Despite its rejection of the tender offer, Shinsei set conditions that SBI should meet if the financial group wants a reversal of the bank's decision. But SBI is widely seen as unlikely to satisfy them.

First, Shinsei urged 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 requires regulatory approval.

Shinsei also called on SBI to raise its offer price, currently at 2,000 yen per share ($17), saying it was too low and does not reflect the true value of the bank. Shinsei shares ended at 1,916 yen on Thursday.

If these conditions are met by Nov. 19 ahead of the extraordinary shareholders' meeting, the bank said it will back SBI's bid and cancel the meeting.

With the tender offer, SBI is aiming 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.

SBI acquiesced to Shinsei in late September 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.

The online financial group is aspiring to become the fourth Japanese megabank, with its CEO Yoshitaka Kitao calling for the reorganization of regional banks in Japan.

Following the 1998 collapse of Shinsei's predecessor, the Long-Term Credit Bank of Japan, the bank received around 370 billion yen in taxpayers' money. Prime Minister Fumio Kishida once worked for LTCB prior to entering politics.

==Kyodo

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