Olympus chairman kikukawa quits after takeover allegations hammer shares

By Mariko Yasu — Oct 27, 2011
Olympus Corp. shares surged the most in more than three decades after Chairman and President Tsuyoshi Kikukawa resigned amid allegations over acquisitions that caused $1.2 billion in losses.
Kikukawa quit yesterday following his Oct. 14 axing of Chief Executive Officer Michael C. Woodford, whose subsequent questioning of advisory fees and writedowns in four takeovers over the past three years led investors to dump the Tokyo-based company’s stock. Olympus rose 23 percent, paring losses that had wiped out more than half the camera and medical-equipment maker’s value in the past two weeks.
There was nothing illegal about the takeover of Gyrus Group Plc, a U.K. medical-equipment manufacturer, and the purchases of three Japanese companies unrelated to its main businesses were part of an expansion into new areas, the Tokyo-based company said in a statement to the city’s exchange today. A review of all the takeovers was under way, it said.
“Olympus had sought M&A as part of its efforts to accelerate growth in medical equipment as well as to reduce dependency on endoscopes,” new President Shuichi Takayama told reporters in Tokyo today. “The acquisition of Gyrus and the three Japanese companies were part of such a plan.”
In axing its first foreign CEO and president, Olympus cited differences over management style. Woodford says he was fired for challenging $687 million of fees paid in the $2 billion takeover of Gyrus in 2008.
PwC Report
After he was dismissed six months into the post of president, Woodford made public a PricewaterhouseCoopers report he commissioned that said the company may face regulatory and legal scrutiny because of the payments made in the acquisition of U.K.-based Gyrus.
Olympus stock dropped so much because of Woodford’s disclosure of company secrets, Takayama said, adding that there was also a “governance problem” at the company. Regaining trust will be the top priority, he told reporters yesterday.
“The company’s shares have fallen so much since October 14, so yesterday’s announcement was a good trigger for a rebound,” said Masaru Hamasaki, chief strategist at Toyota Asset Management Co. in Tokyo.
Olympus closed at 1,355 yen, its biggest one-day gain since at least Sept. 11, 1974. The stock has lost 45 percent of its value since Woodford’s dismissal.
Kikukawa’s resignation failed to address the core issue of the payment of fees and 55 billion yen ($721 million) of writedowns within 12 months of making three other acquisitions, Toshiya Hari and Kenya Moriuchi, Tokyo-based analysts at Goldman Sachs Group Inc., wrote in a note published before Olympus’ statement and briefing today.
‘Not Unreasonably High’
The fee was “not unreasonably high,” according to Olympus. The company chose Axes America LLC as a takeover adviser for the deal because of its ability to negotiate and select targets, it said. Olympus said it adopted a system that decides the size of advisers’ fees based on the size of the deals.
Olympus issued a statement last week disclosing that the $687 million fees to the advisers included a $443 million buyback of preferred shares. The statement was made in response to media reports on the PwC investigation, Olympus said Oct. 19. The accounting firm said the structuring of the fee payment, including the use of share options, and the eventual cost to the company of more than a third of the transaction value was unusual.
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