Olympus Adviser Payments Should Be Probed, PWC Report Says

Olympus Shares Tumble in Tokyo After Board Ousts President
Pedestrians walk past a sign for Olympus Corp. outside the company's showroom in Tokyo, Japan. Photographer: Kiyoshi Ota/Bloomberg

Olympus Corp. may face regulatory and legal scrutiny because of payments made to advisers in a 2008 transaction, according to a PricewaterhouseCoopers report commissioned by ousted president Michael C. Woodford.

Potential offenses include false accounting, financial assistance and breaches of duties by the board, according to an Oct. 11 report that Woodford provided to Bloomberg News. Chairman Tsuyoshi Kikukawa said at an Oct. 14 press conference that the board fired Woodford, a 30-year veteran of the Japanese company, because he “wouldn’t listen” to warnings from Kikukawa. The British executive, who is now back in the U.K., said he was fired after he challenged the transactions.

“The whole board is contaminated and that company needs to be cleaned up,” Woodford said in an interview yesterday. “The whole board have had discussions and vote unanimously and no one asks anything. It’s just complete and utter obedience to Kikukawa.”

Kikukawa didn’t respond to an e-mail seeking comment and the company declined to make him available.

$687 Million Fee

Olympus, a maker of cameras and medical equipment, paid $687 million to two advisory companies related to its purchase of Gyrus Group Plc in 2008, the report said. The fees were more than a third of the $2 billion purchase price, according to the report. One of the advisers, Cayman Islands-incorporated AXAM Investments Ltd., was removed from the local registry in June 2010 for non-payment of license fees, according to the report.

Merger and acquisition advisory fees depend on individual deals and usually range from 1 percent to 5 percent, two people with knowledge of such deals said, declining to be named because they weren’t authorized to talk to the media.

“The eventual cost of the Transaction to Olympus is extremely significant and is as a result of a number of actions taken by management which are questionable and which give cause for concern,” the report says. “We were unable to confirm that there has been improper conduct, however, given the sums of money involved and some of the unusual decisions that have been made it cannot be ruled out.”

Olympus Executive Vice President Hisashi Mori said the report “is based on speculation,” when asked about it in a telephone interview yesterday. Further calls to Mori today weren’t answered.

Shares Plunge

Olympus has lost more than $3 billion in market capitalization over the last two trading sessions. The stock plunged 24 percent, the most since at least 1974, to 1,555 yen as of the 3 p.m. close of trading in Tokyo today. The stock fell 18 percent on Friday when the company fired Woodford.

“It is truly extraordinary and frankly unbelievable that Olympus, a major Nikkei listed public company, made a series of payments approaching USD 700 million in fees to a company in the Cayman Islands whose ultimate ownership is still unknown to us, preventing the auditors from verifying that no related parties were involved,” Woodford wrote to Kikukawa in an Oct. 11 letter. “In putting the company first, the honorable way forward would be for you and Mori-san to face the consequences of what has taken place, which is a shameful saga by any stretch of the imagination.”

PricewaterhouseCoopers spokesman Derek Nash said he “could neither confirm or deny” that the firm had done any work for Olympus.

Six Letters

Woodford showed Bloomberg News six letters he says he wrote to Kikukawa and the board questioning the payments in the weeks before he was fired. The advisers negotiated an increase in completion fees to approximately $682 million from $189 million, according to the PWC report.

There was no external legal advice on the increase and there was no formal board approval for the second agreement, according to Woodford.

“It is important that Olympus take appropriate steps to fully investigate and understand the acquisition of Gyrus and the arrangements made,” the PWC report said.

Japan’s Securities and Exchange Surveillance Commission, the nation’s watchdog, declined to comment on individual companies, according to an official.

Unanimous Vote

Woodford, 51, became president of Olympus in April. He succeeded Kikukawa, who was president from October 2003 to March 2011. Woodford recommended Kikukawa and Mori resign from the board in an Oct. 11 letter. Three days later Woodford was fired.

Kikukawa said at the Oct. 14 press conference that Woodford was ousted “unanimously” at the 9 a.m. board meeting with 13 attendants. Woodford wasn’t allowed to vote because the matter involved his own interests, according to the company. Kikukawa, 70, resumed the presidency in addition to being chairman.

“Most of the directors should retire, new management should be brought in,” said Edwin Merner, president of Atlantis Investment Co. in Tokyo.

Woodford, a graduate of Millbank Business School, joined Olympus 30 years ago through a U.K. medical-equipment unit called KeyMed, where he became managing director by the age of 30, according to Olympus’s website. He spent 27 years in the medical operations before he became executive managing director of Olympus Europa Holding GmbH in 2008 and consolidated all of the company’s European businesses.


Olympus was the third-largest company on the Nikkei 225 Stock Average to have a foreigner as chief executive after Nissan Motor Co. and Sony Corp., according to data compiled by Bloomberg.

Olympus shares had risen 7.3 percent during Woodford’s tenure as president before his ouster, outperforming the 9.6 percent decline by the benchmark Nikkei 225 Stock Average.

Olympus was formed in 1919 as a maker of microscopes and thermometers. The company then expanded into cameras in the 1930s and began developing endoscopes in 1949. By the year ended March 2011, medical systems accounted for 42 percent of overall revenue, Olympus’s biggest division.

“There are various communications between the president and those who are working for him,” Executive Vice President Mori said in a phone interview late yesterday. “I don’t think I need to speak about any more details than the fact there are various communications.”

‘Anti-Social’ Elements

Woodford wrote to Mori on Sept. 23 asking about the company’s payments associated with the Gyrus acquisition and the purchase of three other companies. His letter followed the publication of two articles about the acquisitions in the Japanese magazine FACTA.

“It not only raises many issues relating to the reputation of Olympus, but also to the governance and internal controls applied in the context of the company’s M&A activities over recent years,” the letter said.

Woodford said he left Japan following the Oct. 14 meeting as the recipients of the funds paid to AXES and AXAM couldn’t be identified and a story by FACTA had referred to ‘anti-social’ elements.

“I was extremely concerned for my safety and well-being,” he said. I “left Japan on the first available flight to London via Hong Kong on Friday afternoon.”


As part of the payment AXAM received preferred shares in Gyrus with a face value of $177 million on Sept. 30, 2008, according to the PWC report. Less than two months later, on Nov. 28, Olympus agreed to pay $557 million to buy the preferred shares from the adviser, the report said. AXAM subsequently negotiated a further increase in the value of the shares and in March 2010, Olympus paid $620 million for the securities, according to the report. Gyrus stopped trading as of Jan. 30, 2008, according to Bloomberg data.

“We properly revealed all the information on the acquisition of Gyrus,” said Yasutoshi Fujiwara, a spokesman for Olympus. Further calls to Fujiwara were not answered.

“On the date the preference shares were issued by Gyrus, the Companies Act 1985 made it unlawful for a private limited company to give financial assistance for the purposes of discharging a liability incurred by a purchaser in relation to the acquisition of shares in that company,” the PWC report said.

Additionally, Olympus paid about $773 million for three closely held companies between 2006 and 2008, according to Woodford’s letter. Subsequently, Olympus wrote down the value of the acquisitions by $586 million, the letter said. The acquisitions had little in common with Olympus’ main businesses, according to Woodford.

“There were $800 million in payments to buy companies making face cream and Tupperware,” said Woodford. “What the hell were we doing paying $800 million for these companies?”

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