Shinsei Bank on Thursday decided to reject a tender offer from major online financial group SBI Holdings Inc., raising the prospect of a rare hostile takeover bid in the Japanese financial sector.

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 in an extraordinary meeting next month. The decision was announced after Shinsei held a board meeting earlier Thursday.

At the board meeting, Shinsei decided on a counterproposal, urging SBI to remove the limit on its share purchase -- a condition the financial group is unlikely to accept as under the Japanese law, obtaining a majority stake in a bank needs regulatory approval.

If the tender offer is successful, SBI aims 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.

In late September, SBI acquiesced to Shinsei 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.

SBI is offering 2,000 yen ($17.5) per Shinsei share, higher than around 1,900 yen the stock was trading at on Thursday.

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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