Bloomberg News

Olympus Wins Shareholder Approval for New Board After Fraud

April 20, 2012

Hiroyuki Sasa, incoming president of Olympus Corp., left, and Shuichi Takayama, outgoing president of the company. Photographer: Kiyoshi Ota/Bloomberg

Hiroyuki Sasa, incoming president of Olympus Corp., left, and Shuichi Takayama, outgoing president of the company. Photographer: Kiyoshi Ota/Bloomberg

Olympus Corp. (7733) won shareholders’ approval for new management headed by former banker Yasuyuki Kimoto, a step toward putting behind an accounting fraud that wiped $4.2 billion off its market value.

The Japanese camera maker gained the most in almost three months in Tokyo trading after shareholders elected 11 directors, including Kimoto, who is a former executive at main lender Sumitomo Mitsui Financial Group Inc. (8316), and Hiroyuki Sasa, who headed the company’s medical systems marketing unit. The new board appointed Kimoto as chairman and named Sasa president.

The world’s largest endoscope maker has lost almost half its market value since dismissing then-President Michael Woodford on Oct. 14, after he questioned inflated fees paid to advisory firms for takeovers. Overseas shareholders including Southeastern Asset Management Inc. called for more independent board nominees, saying some have conflicts of interest because of their ties to Olympus creditors.

“The approval is positive since all events related to instability of management will be solved,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. Still, “it is difficult to expect a continuous gain in shares as investors will start to look at fundamentals.”

Olympus rose 6.4 percent, the most since Jan. 23, to 1,286 yen at the close of trading in Tokyo. The shares have gained 27 percent this year, after plunging 59 percent last year.

Proxy Advisory

Shareholders also approved a correction of the company’s financial statements dating back to 2006.

ISS Proxy Advisory Services recommended shareholders vote against three nominees -- Kimoto, Hideaki Fujitsuka, a former executive at Mitsubishi Bank, which is now part of Mitsubishi UFJ Financial Group Inc., and Masashi Shimizu, an executive at Nippon Life Insurance Co., who was nominated as a statutory auditor. Nippon Life is the No. 4 shareholder with a 4.9 percent stake, according to data compiled by Bloomberg.

“I’ve seen the careers and other backgrounds of the members of the new management and believe they are the right people to run the company,” Yoshinobu Tsutsui, president of Nippon Life, told reporters in Tokyo today. “Olympus paved its way for its rebirth today.”

ISS also recommended voting against Sasa, saying he lacked the experience to lead the company after it admitted to a 13- year cover-up of losses. The adviser said shareholders should reject the corrected financial statements because approving them “would not be appropriate at a time when the findings of investigations by public entities are not yet available.”

Executives Prosecuted

Olympus and six individuals were indicted by prosecutors for falsifying securities reports last month. Former Chairman Tsuyoshi 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.

“Japan has a particular problem in relation to its corporate sector,” Woodford said.

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.

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

‘Undue Influence’

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.

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 March 21 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 before today’s meeting.

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.

‘It’s Outrageous’

Olympus has tumbled 48 percent in Tokyo trading since Woodford was dismissed Oct. 14 after challenging then-Chairman Kikukawa and the board over the inflated takeover payments.

“I lost millions of yen on Olympus shares,” Kennichi Yamashita, an 85-year-old shareholder from Tokyo, said after today’s meeting. “I voted against all the resolutions because of what happened. It’s outrageous.”

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.

Full-Year Loss

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 ($392 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.

“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, 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: 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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