Bloomberg News

Olympus Top Shareholders Seek Probe Into M&A, Prompt Action

October 20, 2011

(Adds details of advisory fees in seventh paragraph.)

Oct. 20 (Bloomberg) -- Nippon Life Insurance Co., the largest shareholder of Olympus Corp., and Harris Associates LP, asked the company to respond to investors’ concerns about takeover payments revealed by its fired chief executive officer, which prompted a 47 percent plunge in the stock price.

Nippon Life requested Olympus to take “prompt” action to address investor distrust regarding the company’s corporate governance, Akira Tsuzuki, a Nippon Life spokesman said today.

Olympus, the world’s biggest maker of endoscopes, has lost more than $4 billion of its market value in the five trading days since Michael C. Woodford was fired. Following his dismissal, he made public a PricewaterhouseCoopers report that he commissioned that said the company may face regulatory and legal scrutiny because of payments made to advisers in the acquisition of Gyrus Group Plc in 2008.

Harris Associates, the seventh-largest shareholder of Olympus, sent a letter today to the company’s board and to the Tokyo Stock Exchange seeking an independent probe on 2008 acquisitions, David Herro, chief investment officer of international equities at U.S.-based Harris, said in an e-mail.

The Tokyo bourse hasn’t received a letter from Harris, Naoya Takahashi, a spokesman for TSE, said by phone today. “Generally, we urge companies to disclose information on a matter that affects investors’ judgments. We cannot comment whether we took such action on Olympus,” he said.

Gyrus Acquisition

Olympus, which started business 92 years ago, said yesterday it paid $687 million in fees to advisers for its $2 billion purchase of Gyrus, almost double the 30 billion yen ($391 million) Chairman Tsuyoshi Kikukawa disclosed a day earlier.

Cayman Islands-incorporated AXAM Investments Ltd., one of the two advisers that received the fees that were more than a third of the $2 billion purchase price, was removed from the local registry in June 2010 for non-payment of license fees, according to the PricewaterhouseCoopers report. The PwC report said it couldn’t establish who were the owners of AXAM.

Merger and acquisition advisory fees depend on individual deals and usually range from 1 percent to 5 percent, two people with knowledge of such deals said, declining to be named because they weren’t authorized to talk to the media.

“The eventual cost of the Transaction to Olympus is extremely significant and is as a result of a number of actions taken by management which are questionable and which give cause for concern,” the PwC report says. “We were unable to confirm that there has been improper conduct, however, given the sums of money involved and some of the unusual decisions that have been made it cannot be ruled out.”

Rating Suspension

Olympus, which said the report included “assumptions” and “speculation” and is misleading, dismissed its first non- Japanese president last week saying he bypassed unit managers to give orders directly to employees and “wouldn’t listen.’

Goldman Sachs Group Inc. suspended its rating on Olympus yesterday saying the ‘‘adequacy” of the company’s accounting practices regarding past acquisitions has become unclear. Nomura Holdings Inc. and JPMorgan Chase & Co. are also among brokerages that suspended their ratings on the company as of today.

“There are serious issues surrounding the massive destruction of stakeholder value and there needs to be accountability,” said Herro. “I stress stakeholders because the damage is not just to the shareholders, but the employees, suppliers and customers whom also deserve answers.”

The shares fell 4.9 percent today to close at 1,321 yen in Tokyo trading, extending their loss since Woodford’s dismissal to 47 percent.

Lost Value

Nippon Life, Japan’s largest insurance company, lost about 25 billion yen in the value of its holdings, based on Bloomberg’s calculation of the 22 million shares held by the company. The insurer owned 8.3 percent of Olympus, according to data compiled by Bloomberg.

Spokespeople at Nikko Asset Management Co. and Nomura Asset Management Co., which together hold a 2.6 percent of Olympus, declined to comment whether they have contacted Olympus or regulators.

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

--With assistance from Yuki Yamaguchi in Tokyo. Editor: Peter Langan

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus