Bloomberg News

Olympus Admits to Hiding Losses With Gyrus Fees, Takeovers

November 15, 2011

(Updates with Woodford comment in sixth paragraph.)

Nov. 8 (Bloomberg) -- Olympus Corp. said it hid losses by paying inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc, the first admission of wrongdoing from the Japanese camera and medical-equipment maker since accusations from its former chief executive officer surfaced four weeks ago.

The stock plunged by the daily limit after the company said an independent panel appointed last week to look into past acquisitions found three other takeovers were also used to hide losses on investments from the 1990s. Allegations by Michael C. Woodford after he was axed as CEO on Oct. 14 had wiped more than half the value from the company’s stock before today.

Olympus funneled more than $600 million in fees on the $2 billion Gyrus takeover to funds to cancel unrealized losses that the company had kept off its books, according to a statement today. Only last week, Olympus denied there was anything illegal about the transactions.

“The investigation must continue to determine how much rot there is,” said David Herro, chief investment officer of Harris Associates LP, Olympus’ second-biggest foreign shareholder. “All responsible must, at a minimum, leave. Also, since the management’s credibility is nearly nonexistent, all of what they say must be verified.”

Woodford should return to run the company, Herro said in an e-mailed comment to Bloomberg News.

Woodford Comment

“They need to start rebuilding the company,” Woodford said in a phone interview today. “I’d have to see what shareholders are saying and consider very carefully what to do next.”

Olympus’ third president since Woodford was axed, Shuichi Takayama, will meet the press at 12:30 p.m. in Tokyo. Former Chairman and President Tsuyoshi Kikukawa, who had Woodford removed, resigned on Oct. 26 as investors increased pressure for a review of the deals. Kikukawa denied any wrongdoing when he stepped down and said he intended to stay on the board.

Olympus, the world’s biggest maker of endoscopes, plunged 29 percent at the open in Tokyo trading. The stock has lost almost 70 percent of its value since Oct. 14.

Independent Probe

The company set up a six-person independent investigation, including two former judges and a retired prosecutor, to probe the $1.4 billion of writedowns and fees related to acquisitions.

Olympus paid a total of 73.4 billion yen to increase stakes in Altis Co., News Chef Co. and Humalabo Co. between 2006 and 2008, which was also used to hide losses, it said today. Olympus wrote down 55.7 billion yen, or 76 percent of the acquisition value, in March 2009, the company said in a statement Oct. 19.

Olympus last week said the acquisitions of three Japanese companies unrelated to its main operations were part of an attempt to diversify earnings.

--With assistance from Ben Richardson in Hong Kong and Takashi Amano and Chris Cooper in Tokyo. Editors: Ben Richardson, Peter Langan

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

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


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