By Mariko Yasu and Naoko Fujimura - Nov 8, 2011 12:41 PM GMT+0700
Nov. 8 (Bloomberg) -- David Herro, chief investment officer of international equities at Harris Associates LP, talks about a scandal involving Japanese camera and medical-equipment maker Olympus Corp. Olympus said it hid losses by paying inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc, the first admission of wrongdoing from the company since accusations from its former chief executive officer surfaced four weeks ago. Herro speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Nov. 8 (Bloomberg) -- Olympus Corp. said it hid losses by paying inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc, the first admission of wrongdoing from the Japanese camera and medical-equipment maker since accusations from its former chief executive officer surfaced four weeks ago. Mike Firn reports from Tokyo on Bloomberg Television's "On the Move Asia" with Rishaad Salamat. (Source: Bloomberg)
Olympus Corp. said three executives helped conceal decades of losses by paying inflated fees to takeover advisers, the first admission of wrongdoing since accusations from its former chief executive officer engulfed the Japanese camera maker in scandal four weeks ago.
Former Olympus Chairman Tsuyoshi Kikukawa was involved in hiding losses at the company, said president Shuichi Takayama in a press conference in Tokyo today. Executive Vice President Hisashi Mori, who was fired today, and auditor Hideo Yamada were also involved, Takayama said. The company may take legal action against all three, he said.
Olympus shares plunged by the daily limit and pulled other Japanese equities lower on broader concerns about accounting practices in the country, as Olympus made an about-face after weeks of denying any wrongdoing in the 2008 acquisition of Gyrus Group Plc and payments for three other takeovers.
“The investigation must continue to determine how much rot there is,” said David Herro, chief investment officer of Harris Associates LP. “All responsible must, at a minimum, leave. Also, since the management’s credibility is nearly nonexistent, all of what they say must be verified.”
Olympus released a statement this morning saying an independent investigation found advisory fees, takeover payments and writedowns were used to hide soured investments from the 1990s.
Enron Repeat
The Tokyo Stock Exchange said it’s considering moving the shares in the world’s biggest maker of endoscopes to a watchlist for possible delisting following today’s revelations. Japan’s Securities and Exchange Surveillance Commission is investigating Olympus, according to a person with knowledge of the situation.
“It’s a repeat of WorldCom and Enron,” said Ichiro Yamada, manager of equities at Fukoku Mutual Life Insurance Co. “This scandal has revealed a lack of transparency in Japan’s accounting, which is dragging down the whole market.”
Allegations by Michael C. Woodford after he was axed as CEO on Oct. 14 had wiped more than half the value from the company’s stock before today. Olympus funneled more than $600 million in fees on the $2 billion Gyrus takeover to offshore funds to cancel impairments that the company had kept off its books, the statement said.
Woodford should return to run the company and conduct the “house cleaning,” Herro said in an e-mailed comment to Bloomberg News and on Bloomberg Television. Harris held 10.9 million Olympus shares as of June 30, a 4 percent stake that makes it the company’s second-biggest overseas investor.
While Olympus President Takayama today spoke of the anger he felt toward the three executives who hid the losses, he said there’s no plan for Woodford to return.
Woodford Comment
“They need to start rebuilding the company,” Woodford said in a phone interview today. “I’d have to see what shareholders are saying and consider very carefully what to do next.”
Former chairman and president Kikukawa, who had Woodford removed, resigned on Oct. 26 as investors increased pressure for a review of the deals. Kikukawa denied any wrongdoing when he stepped down and said he intended to stay on the board.
Olympus plunged 29 percent at the open in Tokyo trading. The stock has lost almost 70 percent of its value since Oct. 14.
The company set up a six-person independent investigation, including two former judges and a retired prosecutor, to probe the $1.4 billion of writedowns and fees related to acquisitions.
Diversification
Olympus paid a total of 73.4 billion yen ($940 million) to increase stakes in Altis Co., News Chef Co. and Humalabo Co. between 2006 and 2008, which was also used to hide losses, it said today. Olympus wrote down 55.7 billion yen, or 76 percent of the acquisition value, in March 2009, the company said in a statement Oct. 19.
Olympus last week said the acquisitions of three Japanese companies unrelated to its main operations were part of an attempt to diversify earnings.
After being fired, Woodford went public with his concerns raised with Kikukawa and Mori over $687 million paid in advisory fees in the $2 billion acquisition of U.K. medical-equipment company Gyrus and the writedowns. All the transactions involved payments to Cayman Islands companies or special purpose vehicles whose beneficiaries are not known.
FBI Probe
The U.S. Federal Bureau of Investigation is probing the allegations, according to Woodford.
The probes center on more than $600 million in fees paid to AXAM Investments Ltd., a now-defunct Cayman Islands fund connected to U.S.-based Japanese banker Hajime Sagawa.
Mori, a key official involved in the Gyrus takeover according to U.K. company records, on Oct. 27 declined to name the person who introduced Sagawa to Olympus.
Repeated attempts to reach Sagawa at his registered address in Boca Raton, Florida, have been unsuccessful, as have efforts to trace the owners of Cayman entities paid for the three other acquisitions.
“The money went to those shareholders,” Mori said at the Oct. 27 briefing in Tokyo. “We have no idea who they are.”
To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net
To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net
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