OLYMPUS SCANDAL: $1.5 BILLION IN LOSSES HIDDEN IN DODGY ACQUISITIONS

OLYMPUS

Olympus, a once-venerable maker of cameras and medical equipment, is the world’s largest maker of endoscopes, , instruments that doctors use to look inside the body’s cavities to help detect disease. It holds a 70 percent share of the global market for diagnostic endoscopes. In recent years it has been losing some money in its camera division.

Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and a predecessor to the modern-day endoscope in 1950, according to its website.

Olympus was the world’s No 4 digital camera maker in 2005 but was losing money on ventures and had to cut jobs, consolidate factories and move operations to China. Olympus remains innovative. It has produced a capsule-like endoscope that can be swallowed and take pictures inside the body and transmits images that can be viewed on a screen.

Olympus Scandal: $1.5 Billion in Losses Hidden in Dodgy Acquisitions

In October 2011, Olympus became engulfed in a huge scandal when sacked chief executive Michael Woodford went public with allegations that the company had not properly accounted for about $1.5 billion in payments related to mergers and acquisitions. The crisis escalated when the company dropped weeks of denials and stunned investors by admitting to hiding substantial investment losses for decades and using the unusual payments to assist in the cover-up. [Source: Reuters, November 9, 2011]

The Guardian reported: Shares in scandal-hit Japanese camera-maker Olympus tumbled 30 percent in Tokyo after the company admitted it had been hiding losses going back more than 20 years. The company's shares have lost 70 percent of their value in the last month after ousted British chief executive Michael Woodford blew the whistle on questionable fees paid during acquisitions.[Source: Alex Hawkes and Simon Goodley, The Guardian, November 8, 2011]

Woodford was sacked in mid October after questioning huge payments made in conjunction with acquisitions. In the case of the purchase of British medical equipment maker Gyrus, the advisory fee of $687m (£430m) to a relatively unknown firm called Axes and its Cayman affiliate, Axam, was equivalent to a third of the total consideration paid. The purchase was one of those used to hide long-standing investment losses, Olympus said.

The Yomiuri Shimbun reported: The camera- and medical-equipment maker allegedly made false statements in financial reports, prompting the Securities and Exchange Surveillance Commission to launch a full investigation on suspicion of window-dressing. Olympus dismissed Vice President Hisashi Mori for his involvement in the cover-up, while auditor Hideo Yamada expressed his intention to resign. The company is considering filing criminal complaints against executives involved in the cover-up, including Tsuyoshi Kikukawa who resigned from his post as chairman to take responsibility for the scandal. [Source: Yomiuri Shimbun, November 9, 2011]

According to Olympus, more than 100 billion yen---fees paid to its advisers for the Gyrus purchase and funds to acquire the three domestic companies---was used to offset past losses. During a press conference President Shuichi Takayama said he believed Kikukawa was aware it was illegal for the company to hide the losses. "It cannot be denied we hid them," he said. Asked about the suspicion of window-dressing, Takayama said "It's true our bookkeeping practices have been very inappropriate."

When purchasing Gyrus in 2008, Olympus paid about 66 billion yen to U.S. adviser Axes and another Cayman Islands-based adviser. The company also spent 73.4 billion yen to acquire three unlisted Japanese companies, including a health food distributor, from 2006 to 2008. It reported an impairment loss of 55.7 billion yen during fiscal 2009.

Questions were first raised about Olympus’s acquisitions in August 2011 in the Japanese magazine Facta. The scandal deepened in October after Olympus fired its chief executive, Michael C. Woodford, who said he was dismissed after questioning the company’s chairman and board about some of the payments.

Olympus Spent Huge Sums on Inflated Acquisitions, Advisory Fees to Conceal Investments Losses

Yu Toda wrote in the Yomiuri Shimbun: Olympus Corp.'s cover-up of massive losses has shed light on murky methods employed to clean up the mess left after the nation's economic bubble burst. "Many companies turned to speculative investments as they suffered sluggish sales and stagnant operating profits," Olympus President Shuichi Takayama said at a press conference Tuesday. Takayama said the cover-up was attributed to investment failures that saw investments turn into massive losses in the 1990s due to the bursting of the economic bubble. He declined to reveal the amount of the losses. [Source: Yu Toda, Yomiuri Shimbun, November 10, 2011]

According to sources, a person connected with a major Japanese securities firm, who personally had close ties to Olympus, told the company about "loss-deferring practices." Deferring losses has been used by banks and other companies in the aftermath of the collapse of the economic bubble. The practice is often used to make losses look smaller on the books by selling bad assets to related companies.

To take investment losses off its books, Olympus spent large sums of money to purchase British medical equipment maker Gyrus Group PLC and three Japanese companies and paid huge consulting fees. According to their records, Olympus paid about 66 billion yen mainly in advisory fees for their purchase of Gyrus, an apparent manipulation to conceal losses.

Olympus is suspected of having deliberately acquired the Japanese firms at inflated prices, and in the year following the purchases, it booked impairment losses as a result of decreases in the companies' value. In this way, investment losses were transferred to losses as a result of corporate value miscalculation. An impairment loss is a special nonrecurring charge taken to write down an asset with an overstated book value.

To avert a rapid deterioration of its financial standing, Olympus continued corporate acquisitions and other measures for many years, booking impairment losses to improve its balance sheet. Losses on the purchases of the three Japanese companies amounted to 55.7 billion yen. With money paid on the Gyrus deal included, Olympus may have used more than 100 billion yen in funds for past acquisitions to conceal losses on securities investments.

The concealing of losses began in the 1990s and three top company officials--former Chairman Tsuyoshi Kikukawa, Mori and auditor Hideo Yamada--were involved, Takayama said, adding other executives were unaware of the cover-up. Olympus’s initial response to accusations of fraud was that acquisition fees paid to advisers were not excessive and followed “appropriate” accounting procedures. At a press conference on Oct. 26, Takayama insisted, "The acquisitions were made appropriately and there's nothing wrong with them."

Olympus Reported Only 17 Billion Yen of a 100 Billion Yen

The Yomiuri Shimbun reported: Olympus reported only about 17 billion yen in losses in its annual securities report for the business year ending March 2000, despite the fact its losses totaled nearly 100 billion yen at that time. Accounting standards were revised in 2000 to require latent losses of financial products to be specified in annual securities reports. Olympus should have reported the actual latent losses in its report for the business year ending March 2001. [Source: Yomiuri Shimbun, November 10, 2011]

The major optical equipment maker has announced that it made massive securities investments in the 1990s, but the bursting of the economic bubble saddled the firm with huge appraisal losses. According to the sources, the amount reached nearly 100 billion yen around 2000.

Corporate accounting standards were changed from the business year ending March 2001. The previous method that recorded stocks and other financial products by book value--the price when they were purchased--was abolished. The new method listed them by market value. Under this change, Olympus had to report all the losses in its March 2001 report. However, Olympus anticipated this change a year in advance and posted only about 17 billion yen of the nearly 100 billion yen as an extraordinary loss for the March 2000 settlement term. The company did not post the remainder as a deficit, but deferred it using questionable measures.

The third-party committee now strongly believes the deferral of losses in and after 2000 constituted illegal window dressing. It believes the practice was led by former Olympus Chairman Tsuyoshi Kikukawa, former Vice President Hisashi Mori and full-time auditor Hideo Yamada. Mori and Yamada have reportedly admitted to the panel that they were involved in concealing the losses, the sources said.

Olympus’s Tobashi Scheme

At the heart of Olympus’s action, the New York Times reported, is a once-common technique to hide losses called tobashi, which Japanese financial regulators tolerated before clamping down on the practice in the late 1990s. Tobashi, translated loosely as “to blow away,” enables companies to hide losses on bad assets by selling those assets to other companies, only to buy them back later through payments, often disguised as advisory fees or other transactions, when market conditions or earnings improve. [Source:Hiroko Tabuchi, New York Times, November 17, 2011]

Hiroko Tabuchi wrote in the New York Times: Tobashi allows a company with the bad assets to temporarily mask losses, Mitsuhiro Fukao, a finance professor at Tokyo’s Keio University, told the New York Times. Tobashi was banned in the early 2000s.The practice was made infamous by Yamaichi Securities, which hid over 200 billion yen in losses. Yamaichi collapsed in 1997. It was Olympus’s preferred broker. “The idea is that you pay off the losses later, when company finances are better,” Mr. Fukao said. “If this was the case at Olympus, the payments it made would have been made to finally settle” the loss, he said. [Source: Hiroko Tabuchi, New York Times, November 9, 2011]

Olympus appears to have pushed to settle its tobashi dues from 2006 to 2008, when the local economy was picking up and corporate profits rebounding. “Business was finally strong enough to be able to foot a write-down,” said Mr. Osano at Kyoto University. It was during those years that the company engineered the payouts that have come under scrutiny: $687 million in fees to an obscure financial adviser over Olympus’s acquisition of the British medical equipment maker Gyrus in 2008, a fee that was roughly a third of the $2 billion acquisition price, more than 30 times the norm. Olympus also acquired three small Japanese companies from 2006 to 2008 with little in common with its core business for a total of $773 million, only to write down most of their value within the same fiscal year.

But at the end of 2008, the global financial crisis plunged companies into the red. Olympus booked a 115 billion yen loss in the fiscal year that ended in March 2009. Its loss attracted little attention, however, alongside equally dismal numbers from other struggling manufacturers. With that taken care of, Olympus appeared ready to start a new chapter, said Mr. Yamada of Kabu.com. The chief executive who publicized the payments was promoted, he said, “to focus on growing the company. They did not expect him to start digging into the past.”

Billions Lost by Olympus May Be Tied to Criminals

Hiroko Tabuchi wrote in the New York Times: Japanese officials say that at least $4.9 billion is unaccounted for in a financial scandal at Olympus and are investigating whether much of that money went to companies with links to organized crime. A memo prepared by investigators and circulated at a meeting of officials from Japan’s Securities and Exchange Surveillance Commission, the Tokyo prosecutor’s office and the Tokyo Metropolitan Police Department, appears to link the Olympus losses for the first time to organized crime groups. It also suggests that investigators believe illicit payouts from Olympus went far beyond the roughly $1.4 billion in merger fees and acquisition payments that have come under recent scrutiny, potentially making it one of the biggest scandals in Japanese corporate history.[Source: Hiroko Tabuchi, New York Times, November 17, 2011]

Olympus has denied rumors that it sought the aid of Japan’s notorious organized crime syndicates, known as the yakuza, to help orchestrate a cover-up. But according to the investigators’ memo, Olympus made payments amounting to many times the losses it sought to hide, and investigators suspect much of the additional money went to crime groups.

Olympus paid a total of 481 billion yen, or $6.25 billion, through questionable acquisition payments, investments and advisory fees from 2000 to 2009, according to the memo, but only 105 billion yen has been written down or otherwise accounted for in its financial statements. That leaves 376 billion yen, or $4.9 billion, unaccounted for, according to the memo.

The memo says investigators believe that over half of that amount has been channeled to organized crime syndicates, including the country’s largest, the Yamaguchi Gumi. The memo does not make clear whether Olympus knew about those links. The memo suggests that Olympus may have been coerced by organized crime syndicates that knew about or helped with previous cover-ups to channel ever-increasing funds out of the company. “Olympus was exploited over its cover-up totaling losses of 50 billion yen, and since 2000, over 200 billion yen has disappeared into the underground economy,” the memo said.

The memo confirms that deal payments were largely made by the management consulting firm Global Company, headed by Nobumasa Yokoo, a former banker at the investment bank Nomura. Also helping to arrange those deals, according to those news reports and the investigators’ memo, was ITX, a company acquired by Olympus in 2003 and formerly headed by Mr. Yokoo’s elder brother, Akinobu Yokoo.

The investigators say that in December 2005, ITX bought Tsubasa Net, a software maker, which the memo calls “a front company” known by the Japanese police to be affiliated with the Yamaguchi Gumi. ITX’s earnings report for that year shows it paid 16 billion yen ($208 million) for that acquisition. Meanwhile, Olympus, being advised by Global Company, paid 73.4 billion yen ($953 million) to acquire three Tokyo-based companies---Altis, Humalabo and News Chef---between 2006 and 2008, and then quickly wrote off the investments. The memo identifies all three as front companies with links to organized crime.

And in 2008, when Olympus acquired the British medical equipment company Gyrus and paid 68.7 billion yen ($892 million) in adviser fees partly to a company incorporated in the Cayman Islands, some of those fees were transferred to investment funds with organized crime links, the memo said.

Excessive Risk-Taking and Efforts to Keep Olympus from Going Bankrupt

Hiroko Tabuchi wrote in the New York Times: In June 1998, a disturbing rumor tore through trading floors in Tokyo: Olympus had suffered colossal losses on derivatives trading, punching a large hole in its balance sheet. The company’s shares spiraled down 11 percent in three days. But Olympus categorically denied the rumor and went on to post record profits. All was well in the house of Olympus, the newly installed president, Tsuyoshi Kikukawa, assured investors.[Source: Hiroko Tabuchi, New York Times, November 9, 2011]

The scandal is rocking corporate Japan not least because of the company’s succession of firings, denials and admissions; it is also certain to expose weaknesses in Japan’s financial regulatory system and corporate governance, analysts said. Analysts also warned that more Japanese companies could be hiding losses they incurred in the country’s asset-and-stock-price bubble economy of the late 1980s. Companies routinely poured billions of yen into speculative trades---moves called “zaitech,” or “financial techniques”---that turned sour when the bubble burst in 1990.

”This has been two lost decades for corporate accounting. It’s easy to imagine companies hiding losses for years, waiting for financial markets to recover,” said Hideaki Kubori, a lawyer in Tokyo who specializes in corporate governance and compliance. “But the recovery never came.” Exporters like Olympus were especially eager to prop up their earnings to counter a surge in the value of the yen after 1985, which crimped overseas profit.”In that era, companies found they could make more money investing in land or stocks than you could in your main business,” said Hiroshi Osano, a professor at the Institute of Economic Research at Kyoto University. But after the bubble burst, Japanese companies entered a painful decade of writing off losses. “Those that dealt with the problem straightaway struggled through the 1990s and pulled through,” Mr. Osano said.

The losses Olympus incurred, however, appear to have been so big that the company decided some finessing was in order. It was an enthusiastic investor in derivatives and other risky investments under Toshiro Shimoyama, president from 1984 to 1993, who told the Nikkei industrial daily newspaper in 1986: “When the main business is struggling, we need to earn through zaitech---though doing too much is no good.”

Though it is still unclear how, and how much, Olympus lost from its bubble-era investment spree, there are hints of excessive risk-taking. Until 1990, returns on investments propped up its profit; by 1991, it had written down 2.1 billion yen in securities valuation losses, the first of many write-downs.

In September 1998, three months after the rumors of the colossal trading losses, Olympus said it had written off part of a 45 billion yen investment in emerging market bonds. In its midterm earnings statement in October 1999, the company said it had booked a loss of almost 17 billion yen from trades including interest rate and currency swaps. The company also recorded a loss on a 2.9 billion yen investment in what turned out to be a Ponzi scheme run by the New Jersey firm Princeton Economics International. Those write-downs, however, were the exception, not the norm, and Olympus now admits that it hid investment losses; a third-party panel of legal experts is still assessing how much.

”It is possible that if Olympus had booked all its losses, it would have become insolvent,” said Tsutomu Yamada, a market analyst at Kabu.com Securities in Tokyo. “So Olympus management decided to handle the losses off the books. They did it for the sake of the company.”

Olympus Scandal Raises Questions About the “Japan Way” of Doing Business

”This is a case where Japan’s outmoded practice of corporate governance remained and reared its ugly head,” Shuhei Abe, president of Tokyo-based Sparx Group Co, told Bloomberg. “With Olympus’s case, it will no longer be justifiable for Japan Inc. to continue practicing under the excuse of the “Japan way of doing things.” “The Japanese market is already looking unattractive to foreign investors,” said Hideaki Tsukuda, managing partner at Egon Zehnder International’s Tokyo office. “Japanese companies really have to get their acts together, taking this opportunity to strengthen their corporate-governance practices.” [Source: Tomoko Yamazaki, Shingo Kawamoto and Komaki Ito, Bloomberg, November 9, 2011]

Under Tokyo exchange rules, a company found to have falsified earnings statements is first placed under the “watch list” post, where it is kept for a month. During that period, the exchange will review the magnitude of the wrongdoings, including whether the falsification was done in an organized manner. Should the falsification be considered malicious, the exchange may decide to delist the company. Once that decision is made, a monthlong waiting period commences before the stock is formally delisted. The companies previously delisted for fabricating earnings statements include Livedoor Co., Seibu Railway Co. and Kanebo Ltd., according to the bourse’s website.

Tadashi Kageyama, the Hong Kong-based head of Asia-Pacific investigations at risk consultant Kroll Inc., said he has investigated more than 150 corporate governance cases in the region during the past decade. Kageyama said he is “not really surprised to see a case like this.” “Many times I have been disappointed when working with Japanese companies by them not giving full access,” he said. “The government needs tougher penalties on white-collar crime.”

U.S. regulators are probing allegations by Woodford that more than $1.5 billion was siphoned through offshore funds. At least eight Cayman Islands entities have been linked to Olympus acquisitions that are suspected of playing a role in the accounting scandal. Five of those no longer exist, according to a search of the Caymans registry, which doesn’t give details on the individuals behind the companies. “I had been saying Japan has great value and corporate governance is strong,” said Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd. “Then Olympus blew and clients are asking if Japanese corporate governance is really OK.”

Olympus' Ruled by Handful of Executives with Financial Backgrounds

Yu Toda wrote in the Yomiuri Shimbun: On the surface, Olympus seemed to have checks on its management. For example, it hired directors and auditors from outside the company, as well as a British president who was not tied to corporate insiders. In reality, however, the company's management was ruled by former Chairman Tsuyoshi Kikukawa and a few other executives who came from its financial sections. [Source: Yu Toda, Yomiuri Shimbun, November 11, 2011]

The company's management is believed to have been effectively controlled by several executives who have a background in financial affairs, including Kikukawa and former Vice President Hisashi Mori, both of whom were involved in the cover-up of past losses. Olympus' board of auditors, which is supposed to supervise the board of directors, includes full-time auditor Hideo Yamada, who also has financial expertise. He has expressed his intention to resign over the scandal. All three of the executives have served as head of the company's Corporate Center, which supervises the accounting and financial departments. "Olympus was ruled by the executives who had backgrounds in the financial sections," one employee said. "No other executive could say no to them."

How Woodford Rocked the Boat at Olympus

Olympus initially said it fired Woodford, one of a handful of foreign executives at top Japanese companies, over what it called his aggressive Western management style. But Mr. Woodford disclosed internal documents to show he was dismissed after he raised questions about irregular payouts related to mergers and acquisitions. Woodford later made a bid to return to the company with a fresh slate of directors, but he abandoned that effort after Japanese institutional investors continued to back Olympus’s current management.

On the showdown between Woodford and Olympus chairman Kikukawa Hiroko Tabuchi wrote in the New York Times: One was a rising star at Olympus, a Briton who shocked his colleagues by leapfrogging scores of executives to become the company’s first non-Japanese president. The other was an Olympus hand of almost half a century, with a decade at the company’s helm, credited with kick-starting its digital camera business, and long a witness to its ups---and downs. But when the English president, Michael C. Woodford, confronted the Japanese chairman, Tsuyoshi Kikukawa, last summer over $1 billion in murky payouts and questionable acquisitions Olympus had made during Mr. Kikukawa’s tenure, their worlds clashed. [Source:Hiroko Tabuchi, New York Times October 26, 2011]

And so began a boardroom battle that cost both men their jobs, wiped out much the company’s stock market value. In addition to being a fraud and cover up story the scandal is also a tale of cultural expectations, dashed on both sides, and a look at an old-school way of doing business in Japan that continues to resist the due diligence and best practices that the corporate West expects as a matter of course.

In some ways, the Olympus episode harks back to an older---and more freewheeling---era of Japanese deal-making, before the bursting of the country’s economic bubble in the 1990s and subsequent regulatory reform efforts. Back then, small Japanese shareholders---at times purported to have organized crime links---would threaten to cause ruckuses at corporate annual meetings unless they were paid to be silent. In other cases, companies would pay politicians to secure government business. “In Asia, you trust intermediaries and relationships, so you might think, if I know this person, and he knows that person, I don’t need to conduct due diligence,” said Simon Wong, a partner at the London-based investment group Governance for Owners and an adjunct professor at the Northwestern University School of Law. “Japanese boards need to change,” he said. “They are made up with all insiders.”

Mr. Woodford had officially raised his concerns in a series of letters to the Olympus vice chairman, Hisashi Mori, beginning in mid-September. The letters paint a picture of an increasingly frustrated Mr. Woodward as he demands more disclosure over the acquisitions. In his fifth letter, dated Sept. 27, he set the first of his ultimatums: Mr. Mori must, he insisted, produce documents before his return to Tokyo from London the next day, and agree to a three-way summit with the chairman, Mr. Kikukawa.

But Mr. Kikukawa and Mr. Mori then made what might seem a puzzling move: they offered Mr. Woodford the plum position of chief executive, to add to his post as president. The promotion was announced in a news release filled with glowing praise for Mr. Woodford, championing his cost-cutting drive and presenting him as the new global face of Olympus. “The board have been extremely pleased with the progress made under Mr. Woodford’s leadership,” the release read. No news conference was called.

If the promotion was meant to give Mr. Woodford a greater stake in the company’s future, and a greater sense of loyalty to the board, Mr. Woodford interpreted it as giving him even more ability to investigate the deals. Without the board’s knowledge, he commissioned a report by the accounting firm PricewaterhouseCoopers into the Gyrus deal, including the unusually high advisory fee and apparent lack of due diligence. On Oct. 11, he circulated the report to the board, and called on Mr. Kikukawa and Mr. Mori to resign as “the honorable way” to take responsibility for what he called a “shameful saga.” Three days later, the board fired him.

In an internal e-mail, circulated to Olympus employees on Monday, Mr. Kikukawa complained of what he called Mr. Woodford’s aggressive management style. Mr. Woodford did not obey the rules of the group, the e-mail said; he did not understand the Japanese art of “nemawashi,” or informal consensus building. In perhaps a deliberate jab at Mr. Woodford’s allegations, the e-mail complained of the Englishman’s penny-counting ways. “In Europe, he had to sign off even on every piece of stationery,” the e-mail said. “He frets over every yen spent that he is not aware of.”

Losses for Financial Year 2011-2012

Jiji Press reported: “Scandal-tainted Olympus Corp. said it posted a bigger-than-expected group net loss for the fiscal year to March 2012. The consolidated net loss stood at ¥48.985 billion, compared with its projected loss of ¥32 billion and the ¥3.866 billion profit it logged the previous year. The weaker result stems from additional special losses the optical equipment maker booked to liquidate three companies it used to conceal massive investment losses from the bubble economy, officials said. Sales edged up 0.2 percent from the previous year to ¥848.548 billion. The imaging division, including digital cameras, performed poorly due to the negative effects of the Thai floods, while its key medical equipment operations were stable thanks to strong demand for endoscopes. [Source: Jiji Press, May 11, 2012]

In December, Olympus filed five years’ worth of corrected earnings statements to iron out its accounts. It said that as of the end of September, net assets were ¥46 billion, down from a restated ¥225 billion in March 2007. It also withdrew its forecast for a ¥18 billion net profit in the current business year.

New Olympus President

In February 2012, Kyodo reported: Olympus said it has decided to appoint Executive Officer Hiroyuki Sasa to succeed President Shuichi Takayama, who will step down to take responsibility for the company's loss coverup scandal. After a board meeting held earlier in the day, the Japanese camera and medical equipment maker also decided to appoint Yasuyuki Kimoto, a former senior managing director of Sumitomo Mitsui Banking Corp., as its chairman, the company said. Sasa and Kimoto, who is currently president of the Japan Research Institute, will assume their posts at Olympus after an extraordinary shareholders meeting scheduled for April 20, the company said. [Source: Kyodo, February 27, 2012]

All current board members expressed the same day their intention to resign at the end of the shareholders meeting, the company said. The chairman's post had been vacant since former President Tsuyoshi Kikukawa resigned from the post in October after the scandal broke.

After choosing the new management, the company is expected to step up its efforts to rebuild the company's financial base through such measures as arranging capital or business alliances with other firms. "My mission is to restore our damaged brand and trust as soon as possible," Sasa said. "It's necessary to drastically reform the management structure in order to prevent this kind of problem from happening again." The 56-year-old, who joined Olympus in 1982, has been involved in Olympus' medical business, including the development of endoscopes, for nearly 30 years.

"In the long-run, we'd like to run the company mainly on the medical business," Sasa said at a press conference held in Tokyo. He also said the company needs to "review existing operations and make them stronger and further enhance finance." Olympus remains in dire need of fresh capital after restated accounts showed its shareholder equity at far lower levels than previously disclosed. While noting there are numerous ways to improve the capital adequacy, Sasa did not rule out the possibility of a financial and business tie-up, calling it "one of the options" the company has.

Thus far Olympics has been able to keep its Tokyo Stock Exchange listing.

Olympus Gets Alliance Offers From Sony, Fujifilm, Terumo

With Olympus in a vulnerable situation, potential investment partners attracted by the company’s profitable endoscope business “it holds a 70 percent share of the global market for diagnostic endoscopes---are believed to include Fujifilm, Sony, Panasonic and Samsung Electronics.

In April 2012, Bloomberg reported: Olympus said it received capital alliance offers from Sony Corp., Fujifilm Holdings Corp. and Terumo Corp. Olympus got offers from “more than three” potential partners and may decide as early as next month whether to form a tie-up, President-designate Hiroyuki Sasa said. He didn’t name the others. The company plans to release its business plan as early as May, he said at Olympus headquarters. [Source: Naoko Fujimura and Takashi Amano, Bloomberg, April 3, 3, 2012]

”There’s nothing wrong with the company’s main business,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. “Still, it needs to restore investor confidence before it can raise funds from the market. The fastest and easiest way to boost capital is forming an alliance.”

The company’s ratio of capital to total assets dropped to 4.4 percent, the company said in February. The ratio was 13.5 percent as of June 30, Olympus said Aug. 5. The average of 15 global peers in the precision engineering sector is 46 percent, according to data compiled by Bloomberg. “We can’t leave the ratio as is,” Sasa, 56, said. “My stance on forming partnerships is still neutral as we will first work on our business plans and then decide if we need partners.”

Text Sources: New York Times, Washington Post, Los Angeles Times, Daily Yomiuri, Times of London, Japan National Tourist Organization (JNTO), National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2009 Jeffrey Hays

Last updated August 2012

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