Olympus eyes liquidating shady firms

Acquisitions used to cover up huge losses a 'drag' on business

Kyodo

Olympus Corp. may liquidate three unlisted domestic subsidiaries whose acquisitions were used to cover up massive investment losses, sources said.

Health food and cosmetics firm Humalabo Co., industrial waste disposal company Altis Co. and cooking container maker News Chef Inc. “are dragging down (Olympus’) business performance and have created no beneficial synergies with its core business,” an Olympus source said.

Olympus bought the three firms in 2008 for a total of ¥73.4 billion — an inflated price that substantially overvalued them.

The funds involved in the transactions were subsequently used to cover up more than ¥100 billion worth of investment losses that Olympus incurred after the bubble economy imploded in the early 1990s.

The operations of the three firms differ significantly from Olympus’s mainstay businesses, and all three have been in the red in recent years as liabilities currently exceed assets, according to research firm Tokyo Shoko Research Ltd.

The company is considering selling them as part of efforts to restructure its management and operations. Olympus hopes ditching the three loss-making companies might signal to investors and the markets that the blue-chip company is making a clean break with its shady accounting practices and lax corporate governance.

Former Olympus President and CEO Michael C. Woodford has previously described the three subsidiaries as “Mickey Mouse companies.” Woodford, its first foreign president, was fired shortly after blowing the whistle on the dubious accounting practices.

Olympus is also considering boosting its capital by about ¥100 billion to increase its group net worth, which plunged when the accumulated securities-related losses were reflected in its latest earnings report, the sources said.

Olympus is likely to raise capital mainly by issuing preferred shares. Fujifilm Holdings Corp., Sony Corp. and Terumo Corp. have all shown interest in buying into the camera and medical equipment maker, the sources said.

Last week, Olympus said its capital adequacy ratio had plunged to 4.5 percent as of the end of September, down from 11.0 percent at the end of March.

Olympus hopes the envisioned share issuance will allow it to enter into alliances with other manufacturers or financial institutions, boosting its mainstay endoscope business, the sources said.

But Hitachi Ltd. is not a prospective partner, after President Hiroaki Nakanishi in a recent interview ruled out investing in Olympus. Hitachi also has no intention of buying Olympus’ medical division, as it doesn’t foresee any synergies with its own medical business.

Olympus, which plans to obtain shareholder approval for its management renewal and business revival plans at a special shareholders’ meeting to be held in March or April, aims to compile detailed measures regarding the capital increase prior to the meeting.

But the issue of whether or not Olympus’ stock remains listed on the Tokyo Stock Exchange is seen as the deciding factor for companies and investors who have expressed an interest in the envisaged share issuance.

The TSE is currently considering whether to delist Olympus, and could decide as early as January. Any move to remove Olympus from the bourse’s first section would send the company’s shares plunging to rock bottom levels, and scare off potential investors.

Olympus last week submitted an earnings report for April to September that fully reflected its investment losses, posting a ¥32.33 billion group net loss for the six-month period. The report also showed its consolidated net assets plunged to ¥45.95 billion as of the end of September.

After the financial statements were disclosed, President Shuichi Takayama said Olympus would consider “various measures” to shore up its shrinking capital base, including capital alliances, business partnerships and marketing tieups.

But U.S. investment fund Southeastern Asset Management, which holds around a 5 percent stake in Olympus, said Monday that it is opposed to a third-party allotment of new shares before an extraordinary shareholders’ meeting is held.

“No capital raising should be decided by the incumbent board,” the investment fund said.

Any decision to issue new shares to a third party ahead of a shareholders’ meeting “would likely be seen as a tactic to dilute the voting power of existing shareholders,” it said.

Eight Olympus executives, including Takayama, will have their pay cut between 30 and 50 percent starting this month, to take responsibility for the accounting scandal, company sources said.

Takayama’s salary will be slashed in half, they added.