TOKYO (Dec 20): Shares of Japan's Kadokawa fell by their daily limit on Friday after the media powerhouse behind the Elden Ring game announced a capital tie-up with Sony Group instead of a widely anticipated acquisition.

The two companies said on Thursday that Sony would invest about ¥50 billion (US$317 million or RM1.44 billion) in Kadokawa, which will issue new shares to the technology giant to make it the top shareholder with a stake of about 10%.

On Friday in Tokyo, Kadokawa's shares ended the day untraded with a glut of sell orders at the day's limit low of ¥3,689, a fall of 15.95%.

The stock had surged about 45% since reports emerged of acquisition talks a month ago.

"There had been expectations of a premium through a tender offer bid (by Sony), but those expectations receded," said Hideki Yasuda, senior analyst at Toyo Securities.

Markets may also have been disappointed by the sale price of ¥4,146 per share — a discount of more than 5% on Kadokawa's closing price on Thursday — and the fact the private placement would be dilutive, Jefferies equity analyst Shunki Nakamura wrote in a note.

A Kadokawa acquisition was seen bolstering Sony's anime planning and production capacity and adding original intellectual property in the rapidly growing anime market through the former's publishing business.

Nevertheless, synergies in the co-production and distribution of anime between the firms remain in the offing, as do future moves toward an eventual takeover, Nakamura wrote.

The investment will be used for the creation, development, acquisition and distribution of new intellectual property, including the development of distribution and sales bases overseas, the two companies said.

"Since this half-way ownership ratio does not make sense to us, the alliance is likely to be an opportunity for both parties to deepen their cooperation and explore a path toward acquiring a majority stake," Nakamura wrote.

Shares of Sony rose more than 2% in morning trading and closed the day up around 0.7%, with traders saying the limited capital tie-up with Kadokawa would leave room to allocate funds to other projects.

The benchmark Nikkei average fell around 0.3%.

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