Olympus Corp. (TYO:7733) seems to have reversed its position on payments made during a $2.2 billion acquisition deal for Gyrus Group in 2008, now admitting that recently sacked CEO Michael Woodford was right that nearly one-third of the merger price went to financial advisors.
The $687 million Olympus paid set a new record for the largest M&A fee in history, trumping the previous record of $217 million for a deal worth more than $90 billion. Typical M&A advisory fees run in the 1 percent to 5 percent range.
Last week the Tokyo-based endoscopy giant’s newly appointed president & CEO Tsuyoshi Kikukawa told Japanese newspaper Nikkei that the company had paid advisors about ¥30 billion for their services during the Gyrus deal, which amounts to approximately $391 million.
Just a day later the company revealed that the total payment actually came to $687 million, nearly double the previous figure.
The admission seems to partially vindicate Woodford, the company’s first non-Japanese CEO, who claimed he was terminated just two weeks after taking the corner office for commissioning a PricewaterhouseCoopers investigation that uncovered abnormally steep advisory fees related to the Gyrus deal, according to the New York Times.
"This is not business as usual," an anonymous Tokyo-based M&A banker told Reuters. "Everyone is surprised by this fee. It is in no way in the normal range."
Most of the payments went to a pair of mysterious entities called AXES and AXAM. The PwC report identified former Wall Street banker Hajime “Jim” Sagaway as the lead for AXES and the director of AXAM, which is a tax haven incorporated in the Cayman Islands, according to Reuters.
Woodford also began questioning three other 2008 acquisitions that cost a total of $773 million and were written down by 75 percent the same year. He took his concerns to the U.K.’s Serious Fraud Office. The U.S. Federal Bureau of Investigation has also taken an interest, according to Bloomberg.
Woodford submitted his report to Olympus senior management Oct. 13, including a call for the resignation of several members of the management team, according to an Olympus press release.
The company added that the PricewaterhouseCoopers report Woodward submitted contained "a large amount of material that is based on supposition and speculation," adding that it’s assembled its own independent committee to investigate previous takeovers.
"I’m not saying fraud has taken place, I’m just making sure the authorities have all the documents because the payments were made from the U.K.," Woodford told Bloomberg during a televised interview. "Olympus have to answer the question, ‘Why pay $675 million in relation to an acquisition to unknown parties in the Cayman Islands?’"
Olympus insisted that the Gyrus payments were legal and that a 2009 internal probe into the acquisition was "not able to discover any illegal or unjust points," Bloomberg reported.
Nonetheless, the scandal has dragged the device giant’s stock down more than 55 percent from an opening price of ¥2,482 Friday, Oct. 14, to yesterday’s close at ¥1,099.