Bloomberg News

Olympus’ Kikukawa Quits as Axed Woodford Takes Complaint to FBI

November 02, 2011

Oct. 26 (Bloomberg) -- Olympus Corp. Chairman and President Tsuyoshi Kikukawa quit after allegations over acquisitions wiped out more than half the company’s market value in two weeks and as the chief executive officer he fired prepares to meet U.S. criminal investigators.

Shuichi Takayama, head of the unprofitable camera division, succeeded Kikukawa as president today, Olympus said in a statement to the Tokyo Stock Exchange. Kikukawa will remain as a director, it said.

Kikukawa’s resignation after almost five decades at the camera and medical-devices company follows the ouster 12 days ago of Michael C. Woodford as president. Olympus cited differences over his management style. Woodford says he was fired for challenging $687 million of fees paid in a 2008 takeover, and that the entire board of the company is “toxic” and must be replaced.

“What we want is the truth about what really happened, not a new president,” said Shintaro Shinohara, who helps oversee about $130 billion as head of equities at Prudential Investment Management Japan Co. “It’s unlikely the new president can change the corporate culture that’s the cause of this trouble given he’s drawn from the old board.”

Shares of Olympus have declined by 56 percent since Woodford, the 92-year-old company’s first non-Japanese president, was ousted Oct. 14. The stock fell 7.6 percent to close at 1,099 yen in Tokyo trading today. The statement from Olympus came after the market shut.

Apology

“I apologize for causing concerns due to the share decline triggered by the replacement of the previous president,” Kikukawa said in a statement read by an Olympus official at a press briefing in Tokyo today. “There is no corruption” in past acquisitions, the statement said.

Kikukawa “makes the situation much, much worse,” Woodford said in a phone interview from New York today. “What you want is answers. Why was the $687 million paid? Who was it paid to?”

Olympus has vowed to set up an independent committee to probe its acquisitions after three of its biggest shareholders asked for an explanation of the fees paid in the $2 billion takeover of Gyrus Group Plc in 2008. Such 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.

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 acquisition of Gyrus, a U.K. medical-equipment manufacturer.

‘All Contaminated’

“The board has to go, they’re all toxic, they are all contaminated,” Woodford, 51, said in an interview with Bloomberg Television yesterday. Woodford also questioned about $800 million Olympus paid in other takeovers, with the company writing down more than three-quarters of those companies’ value in the same year.

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

The FBI is investigating payments by Olympus to advisers related to the 2008 acquisition, said a person familiar with the inquiry who declined to be identified because they weren’t authorized to speak publicly about it.

It’s up to the financial services minister to decide whether an investigation is warranted, ruling Democratic Party of Japan lawmaker Tsutomu Okubo said in an interview today.

“We will ask about the Olympus issue tomorrow in the Upper House fiscal and financial affairs committee,” Okubo said. Officials from the Tokyo Stock Exchange and the Financial Services Agency will explain the situation, he said.

Basic Ethics

Recent allegations against listed companies, including compensation paid to advisers on takeovers and unauthorized lending to a director, are “questions of compliance and management ethics at their most basic level,” the TSE said in a statement published after Kikukawa’s resignation was announced and which didn’t identify any companies or investors.

Daio Paper Corp. said last week its chairman stepped down after borrowing 5 billion yen ($66 million) from an affiliate.

Domestic and overseas investors have “expressed opinions that the management of such listed companies have unfairly damaged their corporate value,” the TSE said in the statement on its website. Shareholders were also concerned about “underlying problems in the quality of Japanese corporate governance,” according to the statement.

Takayama said regaining trust will be the company’s top priority. “Our corporate value hasn’t been ruined,” he told reporters in Tokyo today. “We believe we can restore the stock price.”

M&A Criticized

Kikukawa, 70, joined Olympus in 1964, becoming president in 2001. He was “instrumental in the company’s early move into the digital still camera market” while his “aggressive M&A strategy has met with criticism from some investors,” Goldman Sachs Group Inc. wrote in a report Oct. 12, upgrading its rating on the stock to “buy.” Goldman suspended its coverage after Woodford’s dismissal.

During Kikukawa’s tenure, Olympus’ sales grew 82 percent to 847 billion yen from 467 billion yen, while operating profits remained almost unchanged at around 35 billion yen. Kikukawa oversaw about $4.3 billion in 31 acquisitions of companies including Gyrus and ITX Corp., according to data compiled by Bloomberg.

The chairman position has become vacant and a plan for choosing a replacement hasn’t been determined, according to Miho Urakami, a spokeswoman at Olympus.

Camera Losses

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.

The imaging systems unit turned to a loss of 15 billion yen in the year ended March 31. The unit’s profit fell to 3 billion yen in the previous year, a 10th of the 33 billion yen it earned in the year ended March 2008, Bloomberg data show.

Cayman Islands-incorporated AXAM Investments Ltd., which received $670 million of the advisory payments, was removed from the local company registry in June 2010 for non-payment of license fees, three months after receiving its final fees from Olympus, according to the PwC report.

Edwin Merner, who helps oversee about $3 billion as Tokyo- based president of Atlantis Investment, said the leadership change doesn’t matter until the company explains the payments to advisers.

“They’re stonewalling” Merner said. “They still haven’t answered the question about why they paid huge commissions.”

--With assistance from Go Onomitsu, Takashi Hirokawa, Kyoko Shimodoi, Masaaki Iwamoto, Jason Clenfield, Kazuyo Sawa, Yuki Yamaguchi, Takashi Amano, Dave McCombs, Chris Cooper and Naoko Fujimura in Tokyo. Editor: Ben Richardson, Richard Frost

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

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus