Cerberus Plan to Sell a Stake Triggers Drop in Aozora Shares

Aozora Bank Ltd. (8304), the Japanese bank controlled by Cerberus Capital Management LP, fell the most in a year in Tokyo trading after the lender said the U.S. private- equity firm plans to sell a stake.

Shares of Aozora declined 9 percent to 232 yen at the close. Aozora didn’t disclose the size of the stake to be sold in a filing to the exchange. Chief Executive Officer Brian Prince will become chairman, and his current role will be filled by Shinsuke Baba, it also said.

The proposed sale by Cerberus, Aozora’s biggest shareholder, sparked concern about a change of control amid efforts by Prince to pay 227.6 billion yen ($2.9 billion) to taxpayers following a bailout, as well as buy back stock and pay a bigger percentage of profit as dividends. The timing and size of the proposed sale will be determined by market conditions, the bank said today.

“This raises uncertainty about Aozora’s business strategy and direction,” said Toyoki Sameshima, a Tokyo-based analyst at BNP Paribas SA. “The announcement about Prince stepping down is also another factor; he has been supported by investors overseas as a decisive leader.”

Prince is stepping down as CEO and president for personal reasons, Aozora said. Shareholders approved the appointments of Baba and Prince at a meeting today. They also endorsed the proposed repayment of bailout funds and common share buyback, the bank said in a statement after the close of trading.

Exit Plan

Cerberus plans to sell the portion of its 821 million shares through Aozora’s buyback program as the “first step in a disciplined and orderly process” for the disposal of its stake over time, the Japanese bank said. It is considering selling the rest after the repurchase plan begins, either in the market or private transactions, according to the statement. The stake is valued at 190 billion yen based on today’s closing price.

“Cerberus’s sale plans are meshing into Aozora’s capital restructuring,” David Threadgold, a Tokyo-based analyst at Keefe Bruyette & Woods Inc., said on Bloomberg Television. “Cerberus is now looking to take advantage of the circumstances that Aozora has created to plan its own exit.”

The potential supply of stock from Cerberus is greater than the demand from the outstanding shares that the Tokyo-based bank plans to buy back, weighing on the stock, Threadgold said.

Public Funds

Under Prince’s plan unveiled last month, the bank will spend as much as 100 billion yen to buy back 330 million common shares, or 20 percent of the total, over a year starting from Oct. 1. It will repay 22.7 billion yen of public funds through the repurchase of 44.2 million preferred stocks from the state- run Deposit Insurance Corp. of Japan, Aozora said on Aug. 27.

The bank will also raise dividend payouts on common shares to 40 percent of profit from about 30 percent.

Aozora’s predecessor, Nippon Credit Bank, failed in 1998 as bad loans mounted amid a nationwide banking crisis following the collapse of an asset bubble. After being temporarily nationalized, the bank was privatized again in 2000.

Baba, 58, joined Nippon Credit Bank in 1977 and has been focused on investment banking. A Tokyo University graduate, he was appointed as deputy president of Aozora in 2008.

“I plan to build on the foundations that Chairman Prince laid and redouble our retail and corporate sales efforts,” Baba said at a press conference.

Cerberus, based in New York, took control of Aozora in 2003. The bank, which had traditionally depended on selling debenture bonds for funding rather than deposits, became a commercial lender in 2006.

“Aozora will still be attractive to investors based on the dividend plan, although this proposed share sale is putting near-term downward pressure on the stock,” said Shinichi Ina, a Tokyo-based analyst at UBS AG. “Prince just got the repayment plan in shape, taking his bank to a major turning point.”

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.