Bloomberg News

Olympus’s Woodford to Work With Board to Avoid Delisting

November 27, 2011

(Updates with KPMG’s comments in tenth paragraph.)

Nov. 25 (Bloomberg) -- Olympus Corp.’s former president Michael C. Woodford pledged to work with the Japanese camera maker’s board to try and avoid delisting after three executives implicated in a scheme to hide losses resigned.

The company’s priority is to produce accounts by the Dec. 14 deadline set by regulators to avoid being removed from public trading, Woodford told reporters in Tokyo today after his first board meeting since being axed. The stock jumped as much as 25 percent before closing 8.6 percent higher at 1,107 yen in Tokyo as investors bet the scandal would be contained and after Olympus last night promised to put a rescue plan to shareholders and revamp management.

The resignation of former Olympus Chairman Tsuyoshi Kikukawa and two senior aides gives the company an opportunity to add board members untainted by the scandal. Woodford’s exposure of $687 million in fees paid by Olympus to a now- defunct Cayman Islands-based fund rattled investors, prompting Prime Minister Yoshihiko Noda to say the payments could damage the country’s international reputation.

“Funds are buying back as their concerns are easing that the company may get delisted and has more hidden losses,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “Olympus’s image would also improve if Woodford returns.”

While Olympus shareholders including Southeastern Asset Management Inc. have called for the 51-year-old Briton to be reinstated, it wasn’t discussed at today’s board meeting, Woodford told reporters. He has said he would return to the company if shareholders request it, though he added at a later press conference that “he isn’t begging to come back.”

Shares Gain

Shares of the 92-year-old camera and endoscope maker plunged more than 80 percent in the first four weeks after Woodford was fired on concerns about the scale of the losses, the delisting threat and the criminal investigations.

Since Nov. 11, Olympus shares have more than doubled in value and added a fourth straight day of gains today.

The decision to quit by Kikukawa, former Executive Vice President Hisashi Mori and auditor Hideo Yamada avoided a showdown with Woodford, who had been engaged in a feud over their roles in the 2008 takeover of U.K. health care company Gyrus Group Plc. for $2.1 billion. The three colluded to hide losses from investors using inflated takeover costs, Olympus said Nov. 8.

Fraud??????????

KPMG International LLP, whose audit arm flagged concerns over the valuation of preferred stock granted to the Cayman fund as part of fees on the Gyrus deal, today said fraud was evident at Olympus.

“We were displaced as a result of doing our job,” Michael Andrew, KPMG’s global chairman, said at a press conference in Hong Kong today. “It’s pretty evident to me there was very, very significant fraud and that a number of parties had been complicit in the fraud.”

Official conclusions about Olympus’s accounting practices will come out from investigations by Japanese authorities, he said. Olympus spokesman Yasutoshi Fujiwara said the company is awaiting the result of the independent panel appointed to investigate the company’s accounting when asked for comment on Andrew’s statement.

The board meeting was “constructive,” Woodford said, adding that there was a desire to “be civilized.”

“Japan does need people to challenge, scrutinize,” said Woodford, in white shirt and dark blue tie and watched by hundreds of journalists at the Foreign Correspondents Club of Japan. “In Japan, even the meetings were pre-decided.”

Imminent Crisis

Woodford’s comments today contrast with earlier statements that the responsibility for hiding losses rested with the whole board, which voted unanimously to dismiss him Oct. 14. Southeastern Asset and other investors have also pressed for more executives to step down, including Akihiro Nambu, the current head of investor relations.

“There are some voices demanding the management be replaced right now,” Shuichi Takayama, the newly installed president, said in a statement to the Tokyo Stock Exchange last night. “If we change management and can’t take appropriate measures swiftly, then we won’t be able to overcome this imminent crisis.”

Poison

“The company can draw out all the poison if the board changes,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Olympus’s businesses, mainly endoscopes, are doing well, so if its finances improve, there’s room for the stock to rise.”

Woodford’s return to Japan is the first since he left the country on the same day as his dismissal, saying he felt unsafe following reports that the payments made by Olympus may be linked to organized-crime groups. He was escorted by armed police to meetings with investigators yesterday.

Woodford said he’s confident prosecutors will fully investigate Olympus.

“I’m very happy with how things went,” he told reporters after visiting police in Tokyo. The police will decide if the company was involved in organized crime, Woodford said, adding there has been no evidence of any links so far.

Woodford went public with queries he raised with Kikukawa and Mori over $687 million in advisory fees in the acquisition of medical company Gyrus, as well as writedowns of stakes in three other takeovers.

Blowing Whistle

Olympus said the money may have been rerouted to the company via offshore funds to help cancel out losses on securities investments dating to the 1990s.

An independent committee set up by Olympus to investigate its accounting said this week that it found no evidence of criminal involvement. Woodford said it wasn’t possible to reach that conclusion without a forensic inspection of accounts.

Olympus was put on watchlist for possible delisting by the Tokyo Stock Exchange earlier this month after the company admitted it hid losses. The endoscope maker missed the Nov. 14 deadline for reporting first-half earnings and has said it plans to release its full earnings by Dec. 14 after the report is reviewed by auditors.

“If Olympus does not hand in the earning report by Dec. 14. then the company is put on notice for delisting in one month, during which investors still can trade Olympus shares,” Yukari Hozumi, a Tokyo Stock Exchange Inc. spokeswoman, said in a phone interview.

“After that Olympus is delisted,” she said, adding that no extension to the deadline will be given.

--With assistance from Stuart Biggs, Yoshinori Eki and Masaaki Iwamoto in Tokyo, Ben Richardson in Hong Kong and Anand Krishnamoorthy in Singapore. Editors: Anand Krishnamoorthy, 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; Chris Cooper in Tokyo at ccooper1@bloomberg.net

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


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