Bloomberg News

Olympus Backtracks on Gyrus Adviser Fee, Says Amount Double

October 19, 2011

(Adds Woodford comment in fifth paragraph)

Oct. 19 (Bloomberg) -- Olympus Corp. said it paid $687 million to advisers for its acquisition of Gyrus Group Plc, almost double the 30 billion yen ($391 million) in fees Olympus Chairman Tsuyoshi Kikukawa revealed yesterday.

The money paid between 2006 and 2010 in the purchase of Gyrus include a $443 million buyback of preferred shares, the company said in a statement today. Kikukawa told the Nikkei newspaper yesterday the fee amount was about 30 billion yen.

Olympus issued the statement in response to media reports on a PricewaterhouseCoopers investigation commissioned by former President Michael C. Woodford, who was fired last week after questioning the size of the payment for the $2 billion purchase of Gyrus in letters to the chairman. The PwC report said the Tokyo-based company may face regulatory and legal scrutiny because of the payments. Olympus said the report included “assumptions” and “speculation” and is misleading, according to the statement.

“Investors expected that management would deny everything but in fact the chairman started to admit things,” Yuuki Sakurai, president at Fukoku Capital Management Inc., said in a phone interview. “They admitted the payment even though several years ago they didn’t disclose it. It makes you wonder if there’s more out there.”


Woodford sent a copy of a letter to Bloomberg News today that he said he received from Executive Vice President Hisashi Mori on Oct. 6. The letter was accompanied by documents showing $687 million had been paid to two advisers during the purchase of Gyrus.

“It is extraordinary Mr. Kikukawa is acting in this manner and it disturbs me greatly,” said Woodford in reference to the Olympus chairman’s comment to Nikkei yesterday.

Olympus today declined to comment on whether Mori or other board members responded to Woodford’s letters.

“We disclosed the payments today not because we recently found them, but because there have been reports that can cause misunderstandings and we acknowledged the need to disclose more information to investors,” Yoshiaki Yamada, a Tokyo-based spokesman for Olympus, said.

“Our understanding of the advisory fee is that it doesn’t include the capital gain portion on the preferred shares,” he said.

Goldman Sachs Group Inc. in a report today suspended its ratings on the company saying the “adequacy” of the company’s accounting practices regarding past acquisitions has become unclear. JP Morgan Securities LLC and Cosmo Securities Co. also suspended their ratings on the company. Citigroup Global Markets Japan is reviewing its coverage of the company.

The shares fell 2 percent to 1,389 yen as of the 3 p.m. close of trading on the Tokyo Stock Exchange today. The stock has tumbled 44 percent since Woodford was fired.

$3.9 Billion Slump

Shareholders including Nippon Life Insurance Co. have seen more than $3.9 billion in the market value of their investment wiped out since the board fired Woodford, saying he “wouldn’t listen” to Kikukawa.

The scandal deepened after Woodford handed documents relating to the fees including the PwC report to the U.K.’s Serious Fraud Office two days ago. He requested an investigation because the payments were made in the U.K.

Tokyo-based company Olympus may sue Woodford for leaking internal information to the press, Mori said in a conference call with investors and analysts Oct. 17, according to a research note by a Tokyo-based unit of Morgan Stanley.

A U.K. fraud investigation is “unlikely” to trigger a move by the Tokyo Stock Exchange to put Olympus on a watch list, according to Kazuyuki Miyaji, a division manager in the exchange’s disclosure division. That decision would hinge on the company’s own version of events and the results of an investigation by the exchange, he said in a phone interview.

Watch List

“Only when the Tokyo Stock Exchange judges that there is a misrepresentation on their securities report and the misrepresentation is critical enough to affect investors’ decision-making, then we determine to put a company on a watch list,” he said.

Japan’s Securities and Exchange Surveillance Commission, the nation’s watchdog, declined to comment on individual companies, when contacted on Oct. 17, according to an official.

Potential offenses by Olympus include false accounting and breaches of duties by the board, according to the Oct. 11 report by PwC that Woodford provided to Bloomberg News. Most of the payments were made through Olympus’s U.K. unit, Woodford said in an interview.

One of the advisers receiving the fees, Cayman Islands- incorporated AXAM Investments Ltd., was removed from the local registry in 2010, according to an official filing. PwC said they were unable to identify the owners of AXAM Investments.

Deutsche Bank AG and Nomura Securities Co. cut their stock ratings on Olympus the day Woodford was fired, amid concerns about the company’s corporate governance and costs.

“The course of events has not been positive,” David Herro, Chief Investment Officer at Harris Associates LP, an Olympus shareholder, said in an e-mail. “We hope to speak with the chairman shortly.”

Olympus’s Mori said the PwC report “is based on speculation,” when asked about it in a telephone interview on Oct. 16.

“People have a lot of uneasiness about the Olympus story,” Fukoku Capital’s Sakurai said. “People are starting to think that the former president is telling the truth.”

--With assistance from Mariko Yasu, Naoko Fujimura, Kazuyo Sawa, Jason Clenfield, Peter Langan and Masaaki Iwamoto in Tokyo. Editors: Peter Langan, Aaron Sheldrick

To contact the reporters on this story: Chris Cooper in Tokyo at; Stuart Biggs in Tokyo at

To contact the editor responsible for this story: Teo Chian Wei at

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