Olympus Comes Clean, Admits Gyrus Irregularities

by CFO Innovation Staff, 08 November 2011

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With the prospect of delisting from the Tokyo Stock Exchange hanging over its head, Japanese camera and medical equipment giant Olympus Corp. bit the bullet on 8 November and disclosed that its 2008 takeover of Gyrus Group was tainted with irregularities.

In a statement to the exchange, Olympus said that an independent committee it named last week had discovered that the controversial US$680 million it paid in advisory fees for the Gyrus deal was used to cancel past investment losses Olympus had kept off its books.

The stock price plunged 28% in early morning trading, bringing the paper losses to shareholders to more than 60% since the firing last month of Michael Woodford. It was the British-born CEO who disclosed what he said were irregularities in the Gyrus takeover and other transactions.

“The investigation must continue to determine how much rot there is,” David Herro, chief investment officer of Harris Associates, told Bloomberg News. “All responsible must, at a minimum, leave. Also, since the management’s credibility is nearly non-existent, all of what they say must be verified.”

Harris Associates is a foreign investor in Olympus – non-Japanese institutional and individual investors own 27.7% of the company, including the Government of Singapore Investment Corporation, which has a 2.55% stake. The principal shareholders are Nippon Life Insurance (8.4%), Bank of Tokyo-Mitsubishi (4.98%) and Sumitomo Mitsui Banking (3.13%).

According to Bloomberg, Harris Associates is calling for Woodford to return to Olympus and help in its rebuilding.

Olympus has delayed the release of its second-quarter results, which was originally scheduled for 8 November. It risks being delisted if those results are not made public before the middle of December.

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