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Olympus shares dive on financial scandal

October 20, 2011: Olympus Corp in Japan this week has seen the value of its shares almost halvedfollowing the sacking of a new CEO just two weeks into his tenure and an emerging scandal over excessive fees paid to ‘deal advisers’.

The fees, of around $700 million, exceed Olympus’ operating profit for this business year.

Olympus Corp admitted yesterday it had paid US- and Cayman-based advisers US$687 million (435 million pounds) for work on the $2 billion acquisition of UK medical equipment maker, Gyrus. It had earlier denied this, responding to allegations in a detailed report prepared by the sacked CEO Mike Woodford, a 30-year veteran of Olympus (pictured above right in happier times with chairmanTsuyoshi Kikukawa).

Woodford, a UK national, has provided a report to Japan’s Securities and Exchange Surveillance Commission (SESC) calling for an investigation, and has been interviewed by the Serious Fraud Office in the UK.

He is calling for the removal of the Olympus board and a review of all the company’s acquisitions over the past decade.

Woodford says his sacking last week was orchestrated by chairman Tsuyoshi Kikukawa for suggesting the chairman stand down over the payment.

A payment amounting to one-third the acquisition price is far beyond the industry standard of one to two percent of a deal’s value.

Olympus has denied any wrongdoing, while Japanese regulators have made no comment on the issue so far. The Financial Services Agency declined to comment on Wednesday, and the Tokyo Stock Exchange has also made no suggestion of opening an investigation.

Olympus said on Wednesday the payment included US$620 million to buy back preference shares in Gyrus from its adviser in March 2010, or nearly quadruple the price at which Olympus issued them 18 months earlier in exchange for share options issued as part of the fee.

Woodford has also questioned the 73.4 billion yen (US$956 million) paid for three small domestic acquisitions before he was appointed to the board. Olympus later had to write down the bulk of those assets.

Olympus reiterated on Wednesday that he had been dismissed due to a clash of management styles.

Insiders are calling for chairman Tsuyoshi Kikukawa to face consequences.

‘It’s just unbelievable that a chairman who has failed on almost every M&A [merger and acquisition] deal he is involved in – and sacked a CEO he had just hired –is staying on and even taking up the position of president while not mentioning his own responsibility,’ Yasuo Sakuma, portfolio manager at Bayview Asset Management, told Reuters.

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