Shares of Olympus Corp. (TYO:7733) regained more than 17 percent over the weekend after the Tokyo stock exchange indicated it might not de-list the world’s largest endoscope maker, brought low by a scheme to hide its losses with buyouts.
Olympus shares clawed back 17.4 percent of their value over the weekend, rising from Friday’s close of ¥460 (about $5.97) to ¥540 ($7.01). That’s still 73.6 percent off of the ¥2,045 ($26.55) mark as of Oct. 14, when newly fired CEO Michael Woodford exposed the first crack in the cover-up.
Last week the company admitted to a 20-year campaign to hide roughly $1.5 billion in investment losses. Olympus head Shuichi Takayama, its third president in less than a month, pointed the blame at three former executives: chairman Tsuyoshi Kikukawa, who took over the corner office for a couple of weeks in between Woodford’s termination and the appointment of Takayama; executive vice president Hisashi Mori, who was fired; and internal auditor Hideo Yamada, who has tendered his resignation.
Woodford, the company’s first non-Japanese CEO, was sacked after questioning a $687 million acquisition consulting fee. Woodford, who maintains that he was fired for questioning the 2008 payments, is the object of a re-instatement campaign (paid) mounted by former executive and director Koji Miyata. Ex-CEO Woodford has said he’d be willing to take over the corner office again.
The exorbitant payments were evidently sent to eight dummy Cayman Island entitites, not the consultants, and then used to hide the investment losses, according to Bloomberg BusinessWeek.
Miyata, an endoscopy division vet who retired in 2006, told the Wall Street Journal that his petition to reinstate Woodford, had received some support from current employees and one senior manager over the weekend.
Olympus, which has a corner on 70 percent of the endoscopic camera market, launched in 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. Now the Tokyo Metropolitan Police are investigating the firm for possible violation of financial laws, according to Reuters, working alongside Japan’s Securities & Exchange Surveillance Commission and Tokyo prosecutors – and U.S. authorities including the Securities & Exchange Commission and the FBI.
They’ll look into a spate of dubious M&A activity, including its $2.2 billion buyout of Gyrus Group in 2008 (and the $687 million consulting fee that piqued Woodford’s concern in the first place), as well as the 2009 sale of its profitable diagnostics unit to Beckman Coulter for about $1 billion. At the time Kikukawa claimed the divestiture was necessary because Olympus couldn’t compete in the diagnostics market, according to Bloomberg BusinessWeek.
Olympus could have built up the diagnostics business "if we hadn’t wasted all our money on silly things," Woodford told the magazine. "We had to strengthen our balance sheet and didn’t have the money to invest."
The first whiff of scandal spurred one institutional investor,
Government of Singapore Investment Corp., to ditch almost its entire 2.13 percent stake in Olympus, according to Bloomberg. GIC’s stake now amounts to an "insignificant holding," it said, according to the news service.
"GIC disposed of almost all of its investments on first suspicion of possible wrongdoing in Olympus," Bloomberg reported.
Other large shareholders are holding steady but calling for a house cleaning and for Woodfor’d return. The company’s biggest foreign shareholder, Southeastern Asset Management, also demanded a clean slate. Southeastern owns approximately 5 percent of Olympus.
"What Olympus needs now is a thorough clean-up and we believe Michael Woodford is the best man for the job," said Elaine Morrison, a fund manager at Baillie Gifford & Co., which owns about 4 percent of Olympus. "The current management of Olympus has been discredited by its original response to Mr. Woodford’s allegations and its poor communications with shareholders. We expect all directors or employees linked to this wrongdoing to be dismissed and have their ties to the company severed."
"We believe Olympus needs to bring in new management to build stakeholder confidence and to make sure reforms are made," Harris Associates chief investment officer David Herro added, according to Reuters. "The existing top management lacks stakeholder confidence in its ability to make reforms.
"While Olympus has serious problems with corporate governance, it remains a business with strong cash flows and good future prospects," Herro said.
Olympus lenders are also getting into the act, eyeing potential changes to the terms of their loans, Jiji news agency reported. Olympus is lated to meet with its banks this week, according to Bloomberg BusinessWeek, but that might not be enough to mollify their concerns.
"The problem with making an investment decision on all the information we have is that we can’t trust the people who put the information there," Ben Collett, head of Japan equities at Louis Capital Markets HK Ltd., told the magazine. "Anyone close to this issue, or involved at the time, has to be taken out immediately."