Daiwa Buys 23.95% Aozora Stake for $177M, Shares Fluctuate

Key Takeaway

• Daiwa Securities acquires a 23.95% stake in Aozora Bank for $177 million, focusing on wealth management, real estate, M&A, and startups.
• Market reactions: Daiwa shares fell 1.9% to 1,290 yen; Aozora shares rose 3.7% to 2,465 yen post-announcement.
• The deal highlights Japan's corporate governance issues amid concentrated AGMs and efforts to boost shareholder returns.

Daiwa Acquires Stake in Aozora Bank

Daiwa Securities Group Inc. has announced an agreement to purchase a stake in Aozora Bank Ltd. from City Index Eleventh, a fund associated with prominent activist Yoshiaki Murakami and his daughter, Aya Nomura. This acquisition concludes months of speculation regarding potential moves by the fund, which had not previously made public demands on the bank. Daiwa will pay 2,415.5 yen per share, amounting to a total investment of approximately 27.9 billion yen ($177 million). This transaction will increase Daiwa's total stake in Aozora to 23.95%.

The collaboration between Daiwa and Aozora will focus on four key areas: wealth management, real estate, mergers and acquisitions, and startups. This strategic alliance aims to leverage the strengths of both institutions to enhance their market positions. Additionally, Daiwa will nominate a candidate to Aozora's board as an outside director, further solidifying their partnership.

Market Reactions and Financial Details

Following the announcement, Daiwa's shares experienced a decline of up to 1.9%, trading at 1,290 yen, while Aozora's shares saw an increase of as much as 3.7%, reaching 2,465 yen. This market reaction reflects investor sentiment towards the strategic move and its potential impact on both companies.

In May, Daiwa had previously announced plans to acquire a stake in Aozora for approximately 51.4 billion yen, providing the bank with fresh capital after it reported its first loss in 15 years. The mid-sized bank had shocked the market in February with losses on its portfolio of office property loans in the US. This new investment by Daiwa is seen as a step towards stabilizing Aozora's financial position and supporting its recovery efforts.

Broader Implications for Corporate Governance

The acquisition comes at a time when Japan's corporate governance practices are under scrutiny. Investors have raised concerns about the concentration of annual general meetings (AGMs) on the same day, which limits shareholder engagement and poses challenges for corporate governance. According to Japan Exchange Group Inc., almost 60% of companies will hold their AGMs this month, with 30% scheduled for June 27.

Mamoru Shimode, chief strategist at Resona Asset Management Co., commented on the issue, stating, "There’s been cases where you cannot physically attend AGMs. It’s natural for activist investors to want it spread out." The Japanese government and the Tokyo Stock Exchange have been pushing companies to increase returns for shareholders, an effort that has contributed to the Nikkei 225 Stock Average reaching an all-time high.