Olympus sticks to defence of M&A deals, scepticism remains

Japan’s Olympus Corp on Thursday stuck to its defence of deals that have come under fire since the firm axed its British CEO in a bitter boardroom battle, insisting the acquisitions were strategic and involved no wrongdoing. Piling pressure on the 92-year-old company, the Tokyo Stock Exchange said it was unclear if information Olympus had provided was accurate, adding the case could erode trust among global investors for the Japanese stock market. Shares in Olympus closed up 23 percent on Thursday, but market players said the surge was not a vote of confidence. Its stock is still down more than 45 percent from levels before the company fired Michael Woodford, a Briton, on Oct. 14. “This was not an adequate explanation of whether the fundamental values of the acquisitions were reasonable and likely will not win back the trust of investors,” said Shigeo Sugawara, a senior investment manager at Sompo Japan NipponKoa Asset Management. “Today’s explanation was meaningless because it’s limited to a disclosure of information from within the company, when a third-party investigation is what’s needed.”

Not doing too well at the moment

Olympus Chairman Tsuyoshi Kikukawa resigned on Wednesday in a bid to restore confidence in the endoscope and camera maker, shaken by the public stand-off with Woodford over a massive advisory fee for its acquisition of British medical equipment maker Gyrus and other purchases. At a news conference in front of more than 100 reporters, new President Shuichi Takayama calmly defended the deals, including the purchase of three domestic firms - a microwaveable cookware maker, a medical waste recycler and a cosmetic firm that together employ around 120 people. Internal documents leaked by Woodford show those deals cost $773 million. They have since largely been written off. “It was our strategy to find new growth areas to reduce our over-reliance on the endoscope business. These three acquisitions were part of that strategy,” Takayama said.

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The affair has caused consternation over Olympus’s management and fanned concerns generally about Japan’s corporate governance. It is the biggest scandal since Livedoor entrepreneur Takafumi Horie’s challenge to the business establishment ended with charges of securities fraud on 2006. Masaki Shizuka, senior executive officer of the Tokyo Stock Exchange overseeing listing, told a parliamentary committee that trust among investors could drop because it was unclear if information Olympus had provided was accurate. Olympus defended its handling of the Gyrus deal and said the mammoth advisory fee was justified. It paid $2.2 billion for the firm in 2008 and handed a record $687 million in advisory fees to two obscure firms, New York-based AXES America LLC and Cayman Island-based AXAM Investment Ltd. “It will pay off considering what value we will gain from the Gyrus acquisition in the future,” Takayama told the news conference.

Secret Information

Takayama also blasted Woodford for leaking internal information, saying that was the reason Olympus’s share price fell. “If this secret information hadn’t been leaked there would have been no change in our corporate value,” he said. Olympus fired Woodford just two weeks after his appointment as CEO, saying he failed to understand the company’s management style and Japanese culture. Kikukawa then took over Woodford’s role. Woodford says he was sacked for questioning the advisory fee for the Gyrus purchase as well as the three other deals, and for urging Kikukawa to step down.

Japanese media, which at first paid little heed to the dispute, appear to have woken up. Takayama’s news conference was extended to around 100 minutes after angry reporters insisted on more time. “We have more questions and you haven’t cleared up all our doubts,” one Japanese reporter blurted out. Market players said the jump in Olympus’s share price did not imply an easing of investor concerns. “This is short covering following the steep drop. (Investors) are not buying because of what the company said,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. “Share prices won’t return to their appropriate market price level until a thorough report by a third party is issued.” Pressed by big institutional investors, Olympus has agreed to appoint a third-party panel to look into the deals.

Experts said the company’s management - as is often the case in Japan - was hoping to hunker down and weather the storm but that the saga was probably far from over. “It’s going to be like an onion - things will come out in layers,” said Darrel Whitten, managing director of investor relations consultancy Investor Networks. Japan’s Securities and Exchange Surveillance Commission is also looking into the company, sources familiar with the matter told Reuters. Woodford has said he was now talking to the U.S. Federal Bureau of Investigation and Britain’s Serious Fraud Office. 

REUTERS