Olympus admits it paid deal advisers $687m
Japanese camera maker Olympus has admitted it paid $687m to financial advisers – or one-third of the transaction price – when it bought British medical equipment firm Gyrus in 2008.
Olympus’s British former CEO, Michael Woodford, who was sacked as chief executive last Friday after only two weeks in the job, claims he was fired for raising questions about the Gyrus purchase, which cost $2bn.
On Monday Olympus told investors the fee for the purchase was less than half of $678m. Then, on Tuesday, the corporation told Japan’s Nikkei newspaper that the Gyrus-related payment was closer to $391m.
If you’re acquiring a company, professional advice would be between 1-2 per cent. Olympus paid 35 per cent. Michael Woodford
The Japanese corporation has refused to name the advisers in the deal and says it does not know of their whereabouts, but Mr Woodford has identified them as New York-based Axes America LLC, and AXAM Investments Ltd in the Cayman Islands.
In a press release published today, the Japanese corporation says Mr Woodford was dismissed because “major differences had arisen between Mr Woodford and other management regarding the direction and conduct of the company’s business, and this had become an impediment to management decision-making”.
But speaking on Channel 4 News on 17 October, Mr Woodford told Jon Snow: “Normally, if you’re acquiring a company, professional advice would be between 1-2 per cent. Olympus paid 35 per cent – at least $700m, which is almost two years’ profit of the entire corporation – to unknown parties in the Cayman Islands.”
Jon Snow interviews sacked Olympus chief executive Michael Woodford
Payments breakdown
The Olympus press release includes a breakdown of payments made to the financial advisers to the Gyrus acquisition. It shows that basic remuneration was set at US $5m. The company also agreed to pay 5 per cent of the target price for the completed deal, of which 15 per cent would be in cash and the rest in share options and warrants.
An additional $12m payment was made to the advisers in November 2007, one week after the deal was unveiled. The following September Olympus paid a further $50m to buy warrants, and issued $177m worth of preference shares in Gyrus to settle the outstanding options.
In March 2010 AXAM Investments, the financial advisers in the deal, requested that Olympus buy back its preference shares for $730m. Olympus said it believed they were worth $519, and the two sides agreed on the midpoint of $620m.
Unverifiable organisation
Michael Woodford – an Olympus employee for 30 years – told Channel 4 News he had commissioned accountants PWC (PriceWaterhouse Cooper) on 3 September to look into the payments to AXAM.
He said the PWC report “gave more detail about how the agreements moved from 1 per cent, to 2 per cent, to 5 per cent, to 10 per cent – to eventually 35 per cent of the value of the company Olympus was acquiring.”
And he stressed his concern over the fact that payment had been made “to an organisation in the Cayman Islands who nobody can verify who owns it”. He said that once payment to the Caymans had been made, the account had been closed.
Corporate governance
Olympus shares have lost 44 per cent of their value since Mr Woodford’s departure was announced, cutting about $3.9bn off the company’s value.
Analysts at JP Morgan, Goldman Sachs and Citibank have said they are suspending ratings on Olympus because of share price volatility and uncertainty.
The controversy has cast a light on standards of corporate governance in Japan. Japanese regulators have made no comment on the issue so far, and the Tokyo Stock Exchange has made no suggestion of opening an investigation.
Below: Jon Snow interviews Michael Woodford, 17 October 2011