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Elliott Management ups Axis stake, complicating Canon bid

STOCKHOLM/TOKYO (Reuters) - Hedge fund Elliott Management has raised its stake in surveillance camera maker Axis AB, a disclosure notice showed, possibly putting pressure on Japan's Canon Inc to sweeten its 23.6 billion crown (2 billion pounds) takeover bid.

Canon, the world's leading camera maker, in February launched a friendly offer to buy Axis shares to expand in the fast-growing surveillance camera business amid flagging sales of digital cameras.

The takeover bid is contingent upon Canon taking on more than 90 percent of the company's shares, but the notice from Sweden's Financial Supervisory Authority on Monday showed that Elliott Management's investment vehicle now held 10.01 percent.

Elliott did not comment about its intentions and Canon also declined to comment.

Canon's original bid for Axis shares at 340 crowns apiece represented a premium of nearly 50 percent to their closing price ahead of the announcement.

The acceptance period for the offer is due to expire on Wednesday, although Canon has the right to delay this.

The fund's stake effectively rules out a standard squeeze-out procedure in which Canon, once it owns more than 90 percent of Axis shares, can forcibly acquire the rest.

Terms of the deal allow Canon to back out of the deal if it cannot acquire more than 90 percent of the Swedish company's shares.

Canon also has the option of acquiring what it can first, and offer a higher price to Elliott at a later date. Swedish M&A law restricts bidders from offering a higher price for around six months without also paying more to shareholders who accepted the original offer.

To speed up the process, Canon could also raise its original offer price, but sources familiar with the deal say the Japanese company is not in a rush.

Canon's move to fully acquire Dutch print machinery maker Oce, announced in 2009, met a challenge from Orbis Portfolio Management and was completed in 2012 after a squeeze out.

Axis shares fell 0.5 percent to 338.5 crowns on Monday. Canon shares rose slightly in early Tokyo trade but also ended down 0.5 percent at 4,248.0 yen.

(Reporting by Niklas Pollard in Stockholm and Ritsuko Ando in Tokyo; Editing by Alistair Scrutton, Tom Heneghan and Miral Fahmy)