Olympus damage control: Vast adviser fees legit

by Minoru Matsutani

Staff Writer

Olympus Corp., whose shares plummeted about 50 percent after its ousted former president publicly criticized it for dubious money transactions, claimed Thursday there is nothing illicit about the advisory fee it paid in acquiring a British medical equipment firm.

“We believe we did nothing illegal,” Shuichi Takayama, who became president of Olympus on Wednesday, told reporters in Tokyo. “We disclose with sincerity all the information we can.”

Meanwhile, the Securities and Exchange Surveillance Commission has reportedly launched an investigation into Olympus to determine if the Tokyo-based medical equipment and camera maker appropriately disclosed information on the acquisition.

Olympus fired Michael C. Woodford on Oct. 14 because company board members couldn’t put up with his “selfish management style,” Takayama said.

Following his ouster, Woodford disclosed that Olympus paid $687 million, or 35 percent of the roughly $2 billion cost, to acquire Gyrus Group PLC as an advisory fee to Axes America LLC from June 2006 to March 2010, according to a letter dated Oct. 11 by Woodford to then Olympus Chairman Tsuyoshi Kikukawa and carbon copied to board members, downloadable from the New York Times website.

Royalties for an M&A adviser are usually about 1 percent of the acquisition cost.

Axes America was then headed by Hajime Sagawa, a former investment banker who worked at a U.S. branch of a Japanese investment bank, Olympus said.

Olympus said Thursday it had paid Axes America $244 million in advisory fees, including preferred stock of Gyrus worth $177 million, by September 2008. In March 2010, Olympus bought the preferred stock back from Axes for $620 million, it said.

On the $244 million advisory fee, “it’s the amount promised in a contract and we don’t think it’s unreasonably high,” Olympus said in a release.

On the preferred stock, “we decided to buy (it) back for $620 million because its value was expected to increase on expected expansion of (Olympus’) surgical equipment business and we wanted to prevent (Axes) from selling it to a third party,” Olympus said.

Olympus acquired 100 percent of Gyrus shares in February 2008 with the intention of later selling some of the shares to investors. In line with that plan, Olympus paid Axes with a stock option.

However, Olympus decided it would benefit more by keeping the Gyrus shares for itself, taking away Axes’ chance to turn the stock option into cash. Therefore, Olympus gave Axes preferred stock in return for the stock option with the exact same monetary value.

Then, Axes asked Olympus to buy back the preferred stock amid the financial crisis in the U.S. In March 2010, Olympus bought it back for $620 million under the assumption that the amount was then the current value of the preferred stock, which would eternally yield an annual return of 10 percent, according to Olympus.

Olympus responded to another Woodford accusation by saying there is nothing illegal about buying three firms — one recycling medical waste, another making plastic goods and the third making health care products. Woodford has said Olympus board members conducted no due diligence and the three firms’ value plunged.