Olympus Corp.’s (TYO:7733) re-stated finances for the past 5 years include a $1.1 billion hit from its 13-year scheme to hide investment losses with specious M&A consulting fees.
The endoscopy giant made the filings with Japanese regulators after being caught red-handed cooking its books to hide the fees, just avoiding a de-listing from the Tokyo stock exchange but fueling rumors that it will need to merge, sell a division or two or raise some cash to keep itself alive.
Olympus reported net assets of ¥46 billion (≈$591 million) as of Sept. 30, down from ¥225 billion (≈$2.89 billion as re-stated) as of March 2007, according to Reuters.
Net losses for the 6 months ended Sept. 30 were ¥32.33 billion (≈$415 million), spurring more chatter about what the firm needs to do to survive.
"Most probably Olympus has to increase capital. It’s best for the company to merge with others, rather than rebuild by itself," Ryosuke Okazaki, chief investment officer at ITC Investment Partners, told the news service.
"The company might consider recapitalization because ¥46 billion is a very small amount of equity," Nanako Imazu, an analyst at CLSA in Tokyo, told Reuters. "Any significant change in earnings to the downside or any significant change in the yen versus the dollar or the euro is a big risk."
"Although liabilities had not exceeded assets, it does not change the fact that they were window-dressing and, since the amount involved is so big and the period of time this was going on was so long, it’s difficult to say what the Tokyo Stock Exchange will do," added Fujio Ando, senior managing director at Chibagin Asset Management. "I would not say that fear of delisting has disappeared."
"This is extremely positive for Olympus as it can avoid getting de-listed after meeting the deadline to submit its earnings," countered ITC Investment Partners’ Okazaki, according to the news service.
Ousted CEO Michael Woodford, who’s busy mounting a campaign to regain control of Olympus, told Reuters that he’d rather raise the cash from private equity or through a rights issue.
"You have to look at improving the capital structure of the company. Because of the litigation risk, you couldn’t do that publicly, so you have [as] options a strategic alliance, private equity or a rights issue," Woodford told the news service.
Fired as CEO two weeks into his tenure as its first non-Japanese leader, Woodford resigned from the board earlier this month, after Olympus admitted to channeling money through investment funds to hide losses. The technology titan revealed that nearly $1.7 billion in possibly illegal payments were used to conceal heavy losses on investments over the last two decades.
Woodford is back in Japan this week to meet with Olympus employees and investors and Japanese legislators on a panel for corporate governance reform, according to Reuters.
The board “wrecked the company by siphoning off huge amounts of money on all this nonsense,” Woodford said during a recent press conference. “The directors know that they will have to leave to bring credibility back to the board.”
Woodford visited Japan late last month to face the board for the first time since being fired and subsequently blowing the whistle on the scandal. The company has since been probed by U.S. and U.K. regulators for dubious M&A activity, as well as by the Japanese officials for possible ties to organized crime.
He was sacked after questioning the $687 million acquisition consulting fee. Olympus, which has a corner on 70 percent 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.
Meanwhile, the Japanese arm of auditing firm Ernst & Young is setting up an external review panel to determine how it and previous auditor KPMH could have missed Olympus’ $1.7 billion accounting scam.
Medtronic gets in on the burgeoning Chinese device market
China’s medical device market posted sales of $9.69 billion last year and Medtronic (NYSE:MDT) was in the thick of it, according to an interview with Medtronic China president Simon Li in the China Daily newspaper.
Since it entered China in the 1990s, Li said, the company grew its presence there in tandem with the then-nascent med-tech industry. Medical device sales in China reached 61.4 billion yuan (≈$9.69 billion) in 2010, up 35.8 percent over 2009, according to Nanjing Securities.
"At that time, China’s patients had limited understanding of medical technology, and relied on advanced technologies and products which were mostly imported," he told China Daily. "But since then, the medical device market in China has become more and more standardized. Given people’s higher awareness about health, and patients’ larger demand for medical devices coupled with more government investment, both multinationals and local companies have used the opportunity to grow market share and constantly upgrade competitive advantage." Read more
That makes 84 cents per share that the St. Paul-based medical device maker has returned to its investors so far this year.
"St. Jude Medical is making solid progress toward the development of new growth drivers while continuing to reduce costs and increase productivity," chairman, president & CEO Daniel Starks said in prepared remarks. "That progress allows us to initiate this repurchase while remaining committed to funding both our dividend program and our plans to position ourselves for superior long-term growth." Read more
Abbott invests $11.4M in India
Abbott (NYSE:ABT) said it plans to spend ₨610 million, or about $11.4 million, on "grants, donations and social innovation projects" as it aims to improve the lives of 1.5 million Indians, according to the India Times.
The Chicago-area health care giant, which employs more than 12,000 people in India with its Abbott India subsidiary, posted a $3.7 billion global R&D spend last year, some of which went to R&D operations in Goa and Mumbai.
“Building on our significant outreach in 2011, Abbott plans to expand our efforts in India to deliver even stronger benefit for the people we serve in 2012,” Abbott India managing director Vivek Mohan told the newspaper. Read more
BSX flirted with the $5-per-share mark, posting a low of $5.01 today. NUVA shares hit $11.92.
Analysts’ ups and downs
- Abbott (NYSE:ABT): Barclays Capital downgrades to "equal weight" from "overweight."
- Becton, Dickinson & Co. (NYSE:BDX): Citigroup reiterates "neutral" rating and $79 price target.
- Boston Scientific (NYSE:BSX): Leerink Swann lowers Q4 earnings estimate to 7 cents, down from 9 cents, leaves full-year EPS estimate at 38 cents, sets "outperform” rating.
- Cooper (NYSE:COO): Jefferies lowers price target to $70, sets "hold" rating; BMO Capital raises estimates through 2013, sets "market perform" rating and $64 price target; Citigroup raises estimates through 2013, maintains $80 price target and "neutral" rating.
- Haemonetics (NYSE:HAE): Zack’s reiterates “neutral” rating.
- Intuitive Surgical (NSDQ:ISRG): Cantor Fitzgerald initiates coverage at "hold."
- NuVasive (NSDQ:NUVA): Leerink Swann lowers 2012 sales and EPS estimates to $623 million and $1.04, respectively, maintains "outperform" rating.