Olympus Shares Fall as Takayama Backs Away From Revamp Recommendations

Olympus Corp. (7733) fell after President Shuichi Takayama signaled a planned revamp of management may stop short of demands by some overseas investors.

The Japanese camera maker, reeling from a $1.7 billion accounting fraud, has lost about a quarter of its market value since restating earnings and slashing net assets Dec. 14. Takayama said yesterday he didn’t see a need for the entire board to resign over the cover-up, even after an independent review said they had failed to stop a “rotten” core of managers from hiding losses over more than a decade.

Shareholders including Southeastern Asset Management Inc., the biggest overseas stockholder in Tokyo-based Olympus, have said the entire board must go, along with all executives who were involved in the fraud. Takayama and Michael Woodford, who was fired as chief executive officer after challenging his fellow directors over the accounts, are in a battle for control that will test Japanese shareholders’ appetite to shake up one of the country’s best-known global companies.

While Takayama and Woodford both said yesterday they want to avoid a damaging proxy battle, they also traded barbs. Woodford said Takayama must quit and should play no role in deciding Olympus’s future management. Takayama repeated criticisms of Woodford’s abrasive personality and said it was unlikely management could work with him.

Delisting Threat

Since Woodford questioned inflated fees and takeover costs after he was fired Oct. 14, the company admitted to a 13-year scheme to hide losses and purged some senior executives. It 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 that while he was willing to work with Woodford, he won’t meet him until after a separate panel to advise on changes in management reports.

The shares plunged 21 percent yesterday after Olympus took a $1.3 billion reduction in net assets, sparking a cut in the company’s credit rating. The stock fell as much as 11 percent today, before paring losses to trade 3.6 percent lower at 2:20 p.m. in Tokyo.

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.

Shareholder Vote

Shareholders will vote on new management in March or April, Olympus said yesterday. 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.”

The 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 yesterday’s press briefing.

Net Assets

Repeated attempts to reach Olympus executives accused of being involved in the schemes have failed.

Olympus’s 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.”

TSE Review

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 filed corrected earnings from fiscal 2006 on Dec. 14. 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 dismissal. The shares had recouped about half that loss before their two-day plunge.

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.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net

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