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2014, Apr 18

The Olympus Scandal: When a Foreign CEO Rebels

The Olympus Scandal: When a Foreign CEO Rebels

by Cesar Bacani, 24 October 2011
The company’s board of corporate auditors, it said, also concluded that “no dishonesty or illegality is found in the transaction itself, nor any breach of obligation to good management or any systematic errors by the directors recognised.”
 
But all the care taken in undertaking the transactions and the acquisitions’ bright prospects came to naught because of the “worsened external environment following the 2008 recession,” the statement said. On 31 March 2009, said the statement, Olympus wrote down the value of the three companies by 55.7 billion yen, down 76% from the acquisition price.
 
Shareholder revolt
The Olympus statement failed to calm the waters. Olympus is controlled by institutional investors that tended to keep out of management’s way, but the gravity of the revelations is apparently jolting them out of their passivity.
 
Nippon Life Insurance, which owns 8.4% of Olympus, has asked the company to take “prompt action” to address investor distrust. Other principal shareholders include the Bank of Tokyo-Mitsubishi (4.98%) and Sumitomo Mitsui Banking (3.13%).
 
Foreign institutions and individuals collectively own 27.7% of Olympus – the Government of Singapore Investment Corporation has a 2.55% stake – and they are up in arms too. US-based asset manager Harris Associates sent a letter to the board and to the Tokyo Stock Exchange seeking an independent investigation of the acquisitions.
 
The UK’s Serious Fraud Office is also said to have been brought into the fray because some of the payments for the Gyrus deal was coursed through British institutions. Woodford says he has furnished the agency with documents, including the PwC report.
 

On 21 October, Olympus issued a terse statement acknowledging receipt of letters from some shareholders. “We are now preparing responses, and any information that should be disclosed will be promptly made public,” it said.

 
The company also said it was forming “an independent committee consisting of experts including lawyers and accountants” to look into the M&A deals.
 
Woodford’s story
Back in London, Woodford has asked for police protection. “I have been advised by contacts in Japan that I should take care of my safety,” he told the Telegraph newspaper in an interview.
 
“Whether there are forces behind [Olympus], because these transactions are so extraordinary, is a fundamental concern of mine because you are looking at amounts approaching US$1.5 billion, which are pretty inexplicable,” he said.The statement has prompted speculation about involvement by the Yakuza.
 
In other media interviews, Woodford explained how he was alerted to the possibly fraudulent deals. In two articles, the Japanese financial magazine Facta questioned why Olympus paid huge sums for the three unlisted Japanese enterprises and for Gyrus.
 
Woodford said he spoke to Kikukawa about the articles in July but was told not to worry about it. When Facta revealed more details of the deals in September, Woodford wrote a series of letters to both Kikukawa and Executive Vice President Hisashi Mori, to no avail.
 

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