Bloomberg News

Olympus Says Gyrus, Japanese Deals Were Necessary for Strategy

October 27, 2011

Oct. 27 (Bloomberg) -- Olympus Corp., which has lost about 50 percent of its market value in two weeks, said deals being scrutinized after allegations of possible illegality were necessary to its business strategy.

There was nothing illegal about the takeover of Gyrus Group Plc, a U.K. medical-equipment manufacturer, and the purchases of three Japanese companies unrelated to its main units of cameras and medical equipment were part of an expansion into new businesses, the Tokyo-based company said in a statement to the city’s exchange today.

“Olympus had sought M&A as part of its efforts to accelerate growth in medical equipment as well as to reduce dependency on endoscopes,” Shuichi Takayama, who was named the new president, told reporters in Tokyo today. “The acquisition of Gyrus and the three Japanese companies were part of such a plan.”

Olympus, the world’s biggest maker of endoscopes, saw two presidents leave in two weeks as investors increased their review of the deals. Chairman and President Tsuyoshi Kikukawa stepped down yesterday as Olympus vowed to set up an independent committee to investigate past transactions.

Michael C. Woodford was ousted as president Oct. 14, with the company citing differences over his management style. Woodford says he was fired after he challenged $687 million in fees paid for the $2 billion takeover of Gyrus.

‘Not Unreasonably High’

Acquisition payments usually range from 1 percent to 5 percent of the transaction cost, two people with knowledge of such deals said, declining to be identified as they weren’t authorized to talk to the media. Both Kikukawa and Woodford remain directors.

Two overseas funds called for an investigation and Nippon Life Insurance Co., Olympus’s largest shareholder, urged the company to respond to investor concerns.

Olympus rose 22 percent to 1,342 yen as of 1:40 p.m. in Tokyo, headed for its biggest gain since at least 1974.

The acquisition fee for Gyrus was “not unreasonably high,” according to Olympus. The company chose Axes America LLC as a takeover adviser for the deal because of its ability to negotiate and select targets, it said. Olympus said it adopted a system that decides the size of advisers’ fees based on the size of the deals.

After he was fired as president, six months into the post, Woodford made public a PricewaterhouseCoopers report he commissioned that said the company may face regulatory and legal scrutiny because of payments made to advisers in the 2008 acquisition.

Woodford will meet with the U.S. Federal Bureau of Investigation and submit documents related to the fees, he said from New York. Woodford earlier said he asked the U.K.’s Serious Fraud Office to investigate.

Write Down

Olympus issued a statement last week disclosing that the $687 million fees to the advisers included a $443 million buyback of preferred shares. The statement was made in response to media reports on the PricewaterhouseCoopers investigation, Olympus said Oct. 19.

The company’s statement that day also disclosed details of three acquisitions made between 2006 and 2008. The company paid a total of 73.4 billion yen for Altis Co., News Chef Co. and Humalabo Co.

Those purchases “have nothing to do with the acquisition of Gyrus,” Olympus said today.

The company wrote down a total of 55.7 billion yen in the value of those three companies, or 76 percent of the purchase price, in March 2009, last week’s statement said.

Takayama, who succeeded Kikukawa as president yesterday, said regaining trust will be the company’s top priority.

“Our corporate value hasn’t been ruined,” he told reporters in Tokyo yesterday. “We believe we can restore the stock price.”

Takayama, a 61-year-old electrical engineer, joined Olympus in 1970. He held various positions, including head of the technology development planning unit and personnel chief, before taking the helm at the camera business in April.

--With assistance from Takashi Amano, Gearoid Reidy, Go Onomitsu, Kyung Bok Cho and Naoko Fujimura in Tokyo. Editors: Teo Chian Wei, Michael Tighe

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

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.


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