Olympus Corp. (7733) is considering raising about 50 billion yen ($628 million) to boost capital that declined by more than half after the Japanese camera maker admitted to a 13-year accounting fraud.
The amount is a “rough guideline” as Olympus seeks funding through a capital alliance or a public share sale, President Hiroyuki Sasa said in an interview. Olympus resumed talks in May on possible alliances with companies including Sony Corp. (6758), Panasonic Corp. (6752), Terumo Corp. and Fujifilm Holdings Corp., and hasn’t narrowed the number of candidates, he said.
“We must take measures,” Sasa said. The chances Olympus will form an alliance or sell shares to the public are “50-50,” respectively, he said.
Foregoing an alliance would allow Olympus to pursue a business strategy independently, while a tie-up may help accelerate growth in its camera and medical businesses, Sasa said. The president, who took office in April, is cutting 2,700 jobs and restructure plants to revive the company after the scandal.
“We haven’t set the date for making decisions,” Sasa said June 19 at Olympus’s headquarters in Tokyo. “We want to come up with a conclusion as soon as possible, even tomorrow if that’s possible.”
Olympus restated earnings last year, taking a $1.3 billion cut in its total equity, after admitting it paid inflated fees on takeovers and overpaid for three Japanese companies to conceal past investment losses. Net assets fell to 43.8 billion yen as of Dec. 31, from 151 billion yen reported in the previous quarter, according to data compiled by Bloomberg.
“Potential partners are drawn to the growth of Olympus’s endoscope business,” said Tomoki Komiya, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “Olympus’s marketing channel can help them win clients in expanding or entering the medical-equipment industry.”
Olympus’s annual revenue from medical equipment climbed by 33 percent in the five years through March 2011, while sales at the imaging systems unit that handled cameras declined, according to data compiled by Bloomberg.
The medical unit is Olympus’s biggest business and controls 75 percent of the global market for endoscopes, instruments that let doctors look inside the body to help detect diseases such as colorectal cancer.
Tokyo-based Fujifilm (4901), which makes cameras, flat-panel materials, medical equipment and optical devices, is “the best partner” for Olympus as the company can combine its X-ray and ultrasound technology with Olympus’s medical businesses, Shigehiro Nakajima, an executive vice president at Fujifilm, said in January.
The two companies together would control about 85 percent of the market for tiny cameras used by doctors to see inside the body, Fujifilm’s Chief Executive Officer Shigetaka Komori said in an interview in February. However, Fujifilm wasn’t optimistic Olympus would welcome its offer, he said at the time.
“Olympus will most likely to want to run the business by itself,” Komori said.
Terumo, the biggest corporate shareholder of Olympus with a 2.5 percent stake, aims to strengthen the partnership, Shouji Hatano, general manager of strategy planning at Terumo (4543), said Jan. 30.
Panasonic President Fumio Ohtsubo and Sony President Kazuo Hirai have declined to comment on possible tie-up with Olympus.
Sony is speeding up a move into health equipment by using the edge its image sensors have over rivals, Hirai said earlier this year.
A tie-up with a company whose businesses overlap those of Olympus may be difficult as it may require antitrust approval, Sasa said. Accepting a parter who demands more than 30 percent of the company would also be difficult, he said.
“What’s hard is to match our situation and the partner’s aims at the same time,” said Sasa.
Olympus may opt to tie up with more than one company, he said.
“There isn’t much to gain from partners for Olympus other than boosting its capital base,” said Komiya. “It may be better for Olympus to form a capital alliance with more than one company to limit partners’ control.”
Olympus aims to increase its operating margin to at least 10 percent by March 2018 from 4.2 percent in the year ended March 31, the company said June 8. The electronics maker plans to boost its capital ratio to more than 30 percent by March 2017.
“We must avoid the situation of not strengthening the capital,” said Sasa. “It’s too much of risk in management’s point of view.”
Without a capital injection, Olympus would face risk of excessive debt as it promotes restructuring, Komiya said. “They want to raise money with the least interference from the partner.”
Woodford settled a London lawsuit against his former employer under whistle-blowing rules on May 29. Olympus settled for 10 million pounds ($15.7 million), the company said June 8.
Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and its first “gastrocamera,” a predecessor to the modern-day endoscope, in 1950, according to the company’s website.
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