Bloomberg News

Olympus Seeks Approval for New Board to Move Past Scandal

April 19, 2012

Hiroyuki Sasa, president-designate of Olympus Corp., left, speaks during a news conference in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Hiroyuki Sasa, president-designate of Olympus Corp., left, speaks during a news conference in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Olympus Corp. (7733) shareholders are being asked to vote on new management and let the company put behind it an accounting fraud that wiped $4.2 billion off its market value and sparked criminal probes in Japan and overseas.

At an extraordinary meeting tomorrow, the camera maker will seek approval to appoint 11 new directors, including President- designate Hiroyuki Sasa, currently head of marketing for its medical systems unit, and Yasuyuki Kimoto, a former executive at main lender Sumitomo Mitsui Financial Group Inc. (8316) Former President Michael Woodford, who revealed the $1.7 billion cover- up after being fired, has said he’ll attend.

The world’s largest endoscope maker has lost about half its market value since dismissing Woodford Oct. 14. Overseas shareholders including Southeastern Asset Management Inc. have said some board nominees have conflicts of interest because of their ties to Olympus creditors. Southeastern, once the largest foreign stake owner, has signaled it will exit its holdings in a blow to Japan’s attraction as an investment destination.

“There are really no factors prompting Olympus to change, as it got support from lenders and its main business is doing well,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. “Investors still look at the company with some doubt -- they can’t fully trust it.”

Olympus fell 1.2 percent to 1,209 yen at the close on the Tokyo Stock Exchange. The stock has lost 51 percent since Oct. 14.

‘Undue Influence’

Southeastern, Harris Associates LP and seven other Olympus shareholders called for more independent directors in a joint statement on March 21. Hideaki Fujizuka, a former executive at Mitsubishi UFJ Financial Group Inc. (8306), another creditor of Olympus, was nominated as a director after President Shuichi Takayama and all other board members offered in February to step down.

The connection between Olympus’s main banks and some proposed board members “gives rise to a potential conflict of interest,” the investors said in the statement. The group expressed “disappointment” at the “apparent willingness to grant banking interests undue influence.”

Josh Shores, senior analyst and principal at Southeastern, and David Herro, chief investment officer at Chicago-based Harris, didn’t respond to e-mails seeking comments.

ISS Proxy Advisory Services recommended shareholders vote against the company’s board nominees, it said April 6.

‘Worst Way Possible’

At least two current board members, Executive Officer Shinichi Nishigaki and Executive Managing Officer Kazuhiro Watanabe, will remain division heads at Olympus, an official at the Tokyo-based company said earlier this week.

The company also named Akihiro Nambu, who was head of investor relations, to run its financial division. Southeastern Asset and other shareholders called for him to resign over the accounting fraud to conceal investment losses.

“Nothing is changed and its business is as usual,” Woodford said at a press conference in Tokyo today. “Olympus handled it probably in the worst way possible that they could have.”

The former president plans to vote against the board nominees, he said.

‘Bad Message’

Olympus has tumbled in Tokyo trading since Woodford was dismissed Oct. 14 after challenging then-Chairman Tsuyoshi Kikukawa and the board over inflated takeover payments.

“Olympus just sent out a bad message to investors,” said Ichiro Takamatsu, a fund manager who helps oversee $2 billion at Tokyo-based Bayview Asset Management Co. “Without Woodford, this scandal would have been shrouded in darkness for good.”

Six people were indicted by prosecutors for falsifying securities reports last month. Kikukawa, former executive vice president Hisashi Mori and ex-auditing officer Hideo Yamada, were prosecuted. The three were arrested in February for suspected violation of Japan’s Financial Instruments and Exchange Act.

Prosecutors also indicted Akio Nakagawa, Nobumasa Yokoo -- both cited in a December panel report as having aided Olympus in structuring its loss-hiding proposals -- and Taku Hada, who was arrested in February.

Executives Sued

Olympus sued 19 current and former executives, including Takayama and five corporate auditors, in January over their roles in concealing losses. Authorities in the U.S. and U.K. have also investigated Olympus for a cover-up that involved inflating fees to advisers on the $2.1 billion acquisition of London-listed Gyrus Group Plc in 2008 and overpaying for three Japanese companies.

Olympus predicted its first annual loss in three years for the fiscal year ended March 31 after flooding in Thailand damaged its equipment. The net loss may total 32 billion yen ($394 million), it said in February.

Sales at the company’s medical systems division, which account for more than 40 percent of its revenue, increased 2.7 percent in the three months ended Dec. 31, according to data compiled by Bloomberg. The company will report earnings May 10.

Olympus’s net assets fell to 43.8 billion yen as of Dec. 31 from 151 billion yen as of June 30, after restating its earnings statements, according to its financial statements.

Capital Ratio

The company’s ratio of capital to total assets dropped to 4.4 percent as of Dec. 31 from 13.5 percent as of June 30, prompting it to seek partners, it said. Sony Corp. (6758) and Fujifilm Holdings Corp. (4901) approached Olympus about potential alliances, Sasa said earlier this month.

“Olympus is fundamentally a healthy business,” Southeastern and other investors said in the March 21 statement. “Olympus’s financial difficulties are temporary,” and the company would be able to generate at least 50 billion yen of cash flow a year with “a qualified management team,” they said.

Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and a predecessor to the modern-day endoscope in 1950, according to its website. The company controls 75 percent of the global market for endoscopes, instruments used to look inside the body’s cavities to help detect disease.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

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


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