The new slate of directors for Olympus Corp. (TYO:7733) is already drawing fire from foreign investors in the endoscopy giant, after its entire board resigned en masse over a $1.7 billion accounting scandal that’s slashed its valuation by about 50% since October.
The remaining members of the board tendered their resignations to make way for a new series of nominees, who are scheduled for shareholders’ approval in April. But the new president and chairman are company insiders, leading foreign stakeholders to protest their nominations.
Hiroyuki Sasa, tapped to be the new president, runs the marketing operation for Olympus’ medical device business. Yasuyuki Kimoto, nominated to be chairman, is a former executive at Sumitomo Mitsui Banking Corp., Olympus’s main lender.
“We are extremely disappointed with the composition of the proposed board,” said Josh Shores, senior analyst and principal at Southeastern Asset Management, one of the largest foreign investors in Olympus, according to Reuters. “While suggestions that the board be entirely new individuals, with a split chairman and CEO role have been taken into account, the clear creditor orientation of the board is unacceptable.”
But the nominations look better to Japanese eyes, according to Yuuki Sakurai, head of fund manager Fukoku Capital.
“According to Japanese tradition, you must have strong support from your main bank, and I think they needed [Kimoto] to be able to ask for the continuous support of Mitsui Sumitomo,” Sakurai told the news service. “We know that some foreign investors are not in line with those ideas, but having said that, they have 1 man that is from Olympus and 1 who is from the supporting financial side, so to the Japanese point of view that is a good balance.”
Foreign shareholder Indus Capital, which along with Southeastern Asset Management are the 2 biggest non-Japanese investors in Olympus, are worried that creditors like Sumitomo Mitsui could force a dilutive sales of new equity – a boon to creditors but a burden for existing shareholders.
“Looking at capital raising, to have a representative of the bank there as the chairman will only frustrate and alienate any independent foreign shareholder, and I’m sure shareholders in Japan,” former CEO Michael Woodford, who brought the scandal into public view, told Reuters. “It’s completely and utterly wrong.”
"A new management drawn from internal officials and a former banker wouldn’t look likely to ring significant changes at Olympus," added Yoshikazu Higurashi, an analyst at Deutsche Bank AG in Tokyo, according to Bloomberg.
Woodford, the company’s first non-Japanese CEO, was sacked after questioning the $687 million acquisition consulting fee. Olympus, which has a corner on 70% of the endoscopic camera market, launched an internal probe into the fee scandal after Woodford took his concerns to the media, the U.K.’s Serious Fraud Office and the U.S. Federal Bureau of Investigation.
Analyst to Medtronic: Sell off the ICD and spine businesses
Medtronic (NYSE:MDT) should sell off some of its under-performing businesses, namely its implantable cardiac defibrillator and spine operations, according to Wunderlich Securities analyst Greg Simpson, just as it did with its Physio-Control automated external defibrillator unit.
The Fridley, Minn.-based medical device leviathan posted profits of $935 million, or 84 cents per share, on sales of $3.92 billion during the 3 months ended Jan. 27. That’s a bottom-line gain of 1.2% and a top-line increase of 1.6%, compared with Q3 2011.
The Physio-Control business, which Medtronic sold to Bain Capital for $478 million after the quarter closed, contributed sales of $112 million, boosting the company’s overall top line to $4.03 billion. The AED business added $90 million to the adjusted bottom line, $75 million from divestiture-related items and another $15 million in after-tax income.
But Medtronic’s cardiac rhythm management arm logged sales of $1.19 billion, down 2% (3% on a constant-currency basis), compared with Q3 2011, driven by a 9% constant-currency slide for its implantable cardiac defibrillator unit. The ICD business reported sales of $674 million; Medtronic attributed the weaker sales to declining procedure volumes in the U.S. Revenues from pacemaker devices were $467 million, up 3% on a constant-currency basis.
For Medtronic’s spine business, revenues were down 9% (10% on a constant-currency basis), to $784 million. Although international spine sales rose 7% to $229 million, in the U.S. sales were down 14.1% to $555 million. The decline was driven by a 20% slide for the biologics unit, driven by lower sales of its controversial Infuse bone morphogenetic protein.
“Those 2 businesses remain drags on the overall company,” Simpson wrote in a note to investors. “We repeat our belief that the pieces of Medtronic are worth more than the whole, and believe further divestitures could be called for going forward.” Read more
St. Jude raises dividend
St. Jude Medical (NYSE:STJ) declared a 10% increase in its quarterly dividend, raising it to 23 cents per share. The new rate would make the annual dividend 92 cents per share. Read more
DePuy ASR settlements could reach $1M – each
The average settlement amounts of product liability lawsuits filed over Johnson & Johnson’s DePuy ASR hip implants could reach $1 million apiece, according to Legal-Bay LLC, which provides funding for lawsuits. Read more
Deals Roundup
- Osseon Therapeutics inks international distribution deal with Aesculap
- Nidek expands distribution deal with Marco Ophthalmic
- GE Healthcare drops $14M on Insightec Image Guided Treatment
- Endologix doubles Wells Fargo revolver to $20M
- Cervilenz raises $2M in equity round
- Dgimed Ortho drums up $450,000 of hoped-for $2M round
Analysts’ ups and downs
- Cyberonics (NSDQ:CYBX): Canaccord Genuity raises price target from $24.50 to $31, maintains "hold" rating.
- DexCom (NSDQ:DXCM): Brean Murray Carret maintains "buy" rating, raises price target from $12.50 to $13.50.
- NeuroMetrix (NSDQ:NURO): Dawson James Securities maintains "buy" rating, and $3 price target.
- Tornier (NSDQ:TRNX): Dougherty & Co. initiates coverage at "buy," $21.50 price target.
- TranS1 (NSDQ:TSON): Canaccord Genuity upgrades from "hold" to "buy," raises price target $3 to $3.50.
