Olympus Corp. (7733) President Shuichi Takayama said he wants to avoid a battle for control of the company with predecessor Michael Woodford, whose ouster sparked a fraud scandal that may cost the camera maker its listing.
Olympus has been reeling since Woodford questioned inflated fees and takeover costs after he was fired Oct. 14. The company, having admitted to a 13-year scheme to hide losses and having purged senior executives, still faces criminal probes, a battle for management control and a TSE review that may yet see it ejected from the world’s second-biggest bourse.
Takayama said while he was willing to work with Woodford, they won’t meet him until after a panel to advise on changes in management reports. The 51-year-old Briton and Takayama are vying for shareholder backing for their plans to revamp the company and restore investor confidence. The shares plunged as much as 20 percent today after Olympus restated earnings and took a $1.3 billion reduction in net assets.
“Even if we can assume they’ve put their problems behind them and will stay listed, the instability will likely continue amid questions about who runs the company, whether new management can pull things together, and its finances,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “They avoided insolvency but their capital ratio fell as low as 5 percent, which is a weak financial base.”
Takayama said he will consider all options to restore capital, including a tie-up with other companies. Tokyo Stock Exchange rules permit companies to issue new shares to a third party with a dilutive effect of as much as 25 percent without seeking shareholder approval.
The stock dropped 19 percent to 1,065 yen as of 2:21 p.m. on Tokyo’s stock exchange.
Shareholders will vote on new management in March or April, Olympus said today. Takayama said the replacement of the entire board may not be necessary.
“We’ll review our management structure, corporate governance and our business plans as we prepare for the shareholder meeting,” Takayama told reporters in Tokyo. “We’ll be reborn as new Olympus so that we can provide value to all our stakeholders including shareholders, customers, banks and our employees.”
Shareholders including Southeastern Asset Management Inc., the biggest overseas stockholder, have joined Woodford in insisting that the entire board should go. An independent panel set up to investigate the fraud found a culture of “yes men” and a board that failed in its duty to stop a “rotten” core of executives from duping auditors, regulators and investors.
The board unanimously voted to fire Woodford when he challenged the accounting practices. Some board members and senior executives, including the head of the treasury department Shigemi Sugimoto, signed off on documents that formed part of the fraud and were at today’s press briefing.
Repeated attempts to reach Olympus executives accused of being involved in the schemes have failed.
Woodford yesterday appeared before lawmakers considering changes to the country’s corporate governance laws. The 51-year- old Briton has said he plans to propose a new slate of directors and that he would like to be reinstated. He said Takayama must step down, though he is willing to work with him to form a new board.
While the company needs a capital injection, it should avoid an alliance and remain independent, Woodford said.
The world’s biggest manufacturer of endoscopes yesterday filed corrected financial statements for more than five years to avoid the immediate threat of delisting.
Net assets fell to 46 billion yen ($590 million) as of Sept. 30 from 151 billion yen reported in the previous quarter. That took the ratio to total assets to 4.8 percent, compared with the 44 percent average of 15 global peers in the precision- engineering sector, data compiled by Bloomberg show.
“Equity capital has eroded more than expected,” Tokyo- based Rating & Investment Information Inc. said in a statement announcing its decision to cut Olympus two levels to BBB-, with a view to a further downgrade. The rating is one above non- investment, according to data compiled by Bloomberg. “The possibility of additional losses from a lawsuit and other factors also cannot be ruled out.”
R&I is the only company with a credit rating on Olympus, according to data compiled by Bloomberg.
The TSE removed the company from its watch list for automatic delisting after it began filing with the Financial Services Agency. It remains on a separate list for delisting pending a review of the fraud by the exchange.
Olympus stock plunged as much as 81 percent, wiping $7.1 billion off the company’s market value, after Woodford’s Oct. 14 dismissal. The shares had recouped about half that loss as of yesterday as investors bet the fallout from the scandal would be contained and delisting avoided.
Law enforcement agencies in Japan, the U.K. and the U.S. are probing the company after it admitted filing false accounts and hiring a network of advisers, who set up offshore vehicles to route false takeover costs and advisory fees back to Olympus. These were used to cancel out investment losses dating to the 1990s.
Olympus inflated fees and overpaid for companies it bought with the intention of increasing goodwill, according to the Dec. 6 findings of an independent panel investigating the fraud. Hisashi Mori, fired as executive vice president, and Hideo Yamada, a former company auditor, planned to write down the goodwill over years to cancel out the hidden losses.
Goodwill was 121.7 billion yen as of Sept. 30, from the previously reported 168 billion yen at June 30.
Olympus, which restated earnings since 2007, consolidated 13 investment funds used in its cover-up. That led the company to cut the value of its earned surplus as of April 2006 by 117.3 billion yen, it said.
Olympus had a net loss of 32 billion yen for the fiscal first-half ended Sept. 30, compared with a revised net income of 3.8 billion yen a year earlier. Revenue was 414.5 billion yen for the six months, from 417.3 billion yen a year earlier.
The company withdrew its earnings forecasts for this fiscal year.
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