Olympus Corp. (7733) surged the most in more than 37 years on optimism the Japanese camera maker will survive a delisting threat and after it took legal action against executives over a $1.7 billion accounting fraud.
The company plans to overhaul management by April after suing 19 current and former officials for hiding losses, it said in a statement today. Olympus will probably be fined by the Tokyo Stock Exchange, rather than expelled from the world’s second-biggest bourse, the Nikkei newspaper reported yesterday.
“It’s looking much more likely Olympus will keep its listing now,” said Mitsuo Shimizu, an equity analyst at Cosmo Securities Co. “By suing, the company is making it clear who was responsible for hiding losses,” which may help the TSE in its decision to let it remain publicly traded.
Olympus has been reeling since Michael Woodford blew the whistle on inflated takeover costs after he was fired as chief executive officer Oct. 14. The allegations forced the company to reveal a 13-year scheme to conceal soured investments dating back to the 1990s and raised concerns among investors and lawmakers over Japan’s corporate governance rules.
Olympus jumped as much as 28 percent, the biggest intraday gain since September 1974, on the Tokyo Stock Exchange. It traded 22 percent higher at 1,287 yen at the lunchtime break.
The company’s auditors filed the legal claims, which include six current directors, at the Tokyo District Court on Jan. 8, Olympus said in a statement today.
“Payment of each individual will be decided by the court,” said Tsuyoshi Kitada, a spokesman for the Tokyo-based company.
Directors involved in the scheme to hide investment losses over more than a decade caused 86 billion yen in damages to the company, according to the findings of an independent panel released today.
Olympus is seeking as much as 3.6 billion yen in damages from executives including ex-Chairman Tsuyoshi Kikukawa, it said. Shuichi Takayama, who took over from Woodford, is being sued for as much as 500 million yen, the company said.
Former company auditor, Hideo Yamada, and Hisashi Mori, fired as executive director over his role, are being sued for 3.01 billion yen and 2.81 billion yen, respectively, it said.
Olympus didn’t make its current officials immediately available to comment and repeated attempts since the scandal broke to get the response of those involved, including visits to their homes, have failed.
The legal action “spurs optimism that the company will improve its management structure,” said Yoshihiro Okumura, who helps manage the equivalent of $365 million at Chiba-Gin Asset Management Co. in Tokyo. “It may accelerate Olympus’s moves to resolve its problems.”
The company last week said it may hold an emergency shareholder meeting as early as March at which current board members, including Takayama, will resign and investors will vote on new management.
The bourse is likely to let the company retain its listing and will fine it 10 million yen instead, the Nikkei reported yesterday. The TSE today said no final decision has been made.
The TSE put Olympus on a watchlist to be removed from the bourse after it admitted to inflating fees to advisers on the $2.1 billion acquisition of London-listed Gyrus Group Plc in 2008 and overpaying for three Japanese companies. The intention was to increase goodwill that would subsequently be written off to mask the investment losses, a separate independent panel investigating the fraud said last month.
That panel said it 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.
Olympus’s biggest shareholder, Sumitomo Mitsui Financial Group Inc. (8316), said after Japanese prosecutors raided the camera- maker’s offices last month that it would maintain support for the company. Southeastern Asset Management Inc., the company’s biggest overseas stockholder, and Harris Associates LP have said the entire board and all executives involved in the fraud must go.
The company “continues to suffer under shoddy corporate governance and an utterly discredited board,” Josh Shores, a London-based principal at Southeastern Asset, said in a Jan. 6 statement. “We maintain that the board should be replaced and a new board should oversee the company’s revival.”
The company has lost about $5 billion of market capitalization since firing Woodford and was forced to restate more than five years of earnings last month to avoid an automatic delisting after admitting to the cover-up.
Olympus’s net assets fell by 105 billion yen to 46 billion yen after the restatement.
The company, also the world’s largest maker of endoscopes, faces criminal probes in the U.S. and U.K., as well as Japan, since Woodford made the takeover payments public in October.
Woodford also filed a case in the U.K. last week seeking damages for the remainder of his four-year contract and additional costs. The 51-year-old former CEO also abandoned efforts to regain control of Olympus after failing to gain support from Japanese shareholders.
Woodford last week said he may also sue in Japan.
“We’ll see suits and countersuits taking place in the next couple of weeks, if not months.” Eugene Tan, assistant professor of law at the Singapore Management University, said yesterday following Japanese media reports that the lawsuits had been filed. “It’s all part of the natural fallout to be expected with each party trying to stake their positions and to protect their legal interests.”
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