After three consecutive years of punishing losses, Olympus is in the process of off-loading its camera division to a private equity ‘carve out’ operation, Japan Industrial Partners (JIP).
The deal is only at Memorandum of Understanding stage so, as the saying goes, ‘many a slip between cup and lip’ : ‘Both companies are entering into further discussions about the potential transfer (our italics) of Olympus’ imaging business to JIP, ‘with a conclusion to the transaction expected by December.’
The new company will carry on making and selling Olympus cameras and lenses, as well as maintaining R&D and manufacturing facilities around the world and providing service to current Olympus owners.
Olympus has been denying it had any plans to exit the 84-year-old camera business in what we described back in November last year (Whither Olympus, whither M43?) as a ‘kinda half-arsed sort of way (“we currently have no plans to sell”)’. It actually flagged something was up last week (June 17), when it postponed its scheduled forecast for the current financial year to March 2021. The focus of that announcement was exclusively on the medtech businesses. The word ‘camera’ doesn’t appear once in a press release and accompanying 12-slide Powerpoint presentation!
In the last financial year to March 2020, revenue in the Imaging Division was down 10 percent (not too bad in a camera market shrinking by more than 20 percent), and posted an operating loss of 10.4 billion yen, an improvement on the 2019 loss of 18.3 billion yen.
Japan Industrial Partners purchased Sony’s VAIO computer division in 2014 with less than spectacular results. The VAIO brand hasn’t quite disappeared without a trace – it still exists in a few countries in the world, including the US. Sony retained a small stake in VIAO.
The Olympus mantra is ‘business as usual’. A posting on the Olympus Australia Facebook site states:
Our direction and strategy remain unchanged and committed to creating high-quality products for all photographers…During the ongoing discussions, Olympus Imaging will operate with business as usual. Our Sales, Admin Support, Customer Service and Marketing departments will continue to work on innovative initiatives for our customers and ambassadors while remaining committed to the launch of new products as planned.
However, not entirely business as usual. The official Olympus Japan statement flags cost-cutting prior to the business moving to the new owners:
Olympus plans to implement structuring reforms to the Imaging business aiming to change the business structure of Imaging business to be more profitable and sustainable. We are currently investigating costs and other impacts of the structuring reform.
Here’s a worrying take on the move, from Doug Janis, writing in DPReview: ‘In the last 5 years JIP has sold off assets of over 14 companies. Not one has it ever restructured or continued development. It doesn’t have the capital. JIP exists solely to manage brands for the benefit of shared agreements with shareholders. That’s why VAIO is 10 percent owned by Sony and why JIP outsources all design and manufacture to Chinese parts bin suppliers for components. JIP has no R&D, no internal development, no engineers, nothing. They are accountants.
‘They are a vulture fund of privately-owned equity partners designed to get around Japanese pension, retention, and servicing laws.’
– If this turns out to be the case, expect to see the hallowed Olympus brand on cheap junk out of China. As POTUS would say: ‘Sad’.
Something had to give
Back in that November article we wrote: ‘In a market which has been losing roughly 20 percent of sales each year for the past five, it would be sensible to assume something has to give eventually. Can the global camera market really sustain eight or, counting Sigma, nine competitors?’
And added: ‘With only OIympus and Panasonic supporting M43, and Panasonic doing a fuller job of it than Olympus – especially with its niche video-centric models, Olympus emerges as the weakest player in arguably the weakest format.’
The full release:
Signing of Memorandum of Understanding for Divestiture of Imaging Business
Olympus Corporation (“Olympus”) and Japan Industrial Partners, Inc. (“JIP”) hereby announce that, today, the parties signed a memorandum of understanding to carveout Olympus’s Imaging business to a new company (“NewCo”) and subsequently transfer its shares to a fund managed, operated or otherwise handled by JIP (the “Transaction”).
After the due diligence and further discussions and negotiations, the parties are aiming to sign a legally- binding definitive agreement for the Transaction (the “Definitive Agreement”) by September 30, 2020. We will promptly make further announcement if any matters relating to the Transaction that needs further announcement occur.
1. Background and Purpose of the Transaction
Olympus’s Imaging business began with the manufacture and sale of a camera using the photographic lens Zuiko in 1936. Through innovative technology and unique product development capabilities, Olympus has developed and launched various products, aiming to contribute to make people’s lives more fulfilling. Those products include: Olympus Pen, the innovative half-sized camera; Zuiko Pearlcorder, the world’s first micro-cassette tape recorder; and Olympus OM-D series, the mirrorless interchangeable lens camera. Olympus has implemented measures to cope with the extremely severe digital camera market, due to, amongst others, rapid market shrink caused by the evolution of smartphones; Olympus has improved the cost structure by restructuring the manufacturing bases and focusing on high-value-added interchangeable lenses, aiming to rectify the earning structure to those that may continue generating profit even as sales dwindles. Despite all such efforts, Olympus’s Imaging business recorded operating losses for 3 consecutive fiscal years up to the term ended in March 2020.
Under such circumstances, Olympus considers that, by carving-out the Imaging business and by operating the business with JIP, the Imaging business’s corporate structure may become more compact, efficient and agile and it is the most appropriate way to realize its self-sustainable and continuous growth and to bring values to the users of our products as well as our employees working in the Imaging business. Olympus therefore has decided to sign the memorandum of understanding for the Transaction.
JIP has strong track records in supporting strategic carve-outs that realize growth potential and encourage autonomous growth. By adding support from JIP, the NewCo, as the successor of reputable brands such as “OM-D” and “ZUIKO,” will utilize the innovative technology and unique product development capabilities which have been developed within Olympus, and will realize continuous growth of the business by bringing better products and services to the users and customers and by making itself a productive and rewarding work place for its employees.
2. Imaging Business after the Transaction
NewCo will succeed and maintain the research and development functions and manufacturing functions globally as reformed under the contemplated structuring reforms to continue to offer high-quality, highly reliable products; and also continue to provide supports to the imaging solution products that have been distributed by Olympus.
3. Outline of the Transaction
The specifics of the Transaction shall be decided in the Definitive Agreement after careful examination and consultation between the parties. The parties currently consider the outline of the Transaction shall be as follows.
The parties will proceed with the actions and procedures for Transactions in full compliance with applicable laws including consultation obligations and other requirements under local employment laws.
Olympus’s Imaging business will be transferred to the NewCo by way of company split or otherwise, and then, shares in the NewCo will be transferred to a new company to be established by JIP.
Signing of Definitive Agreement: Scheduled to be signed by September 30, 2020
Closing: Olympus and JIP strive to close the Transaction by December 31, 2020.
Prior to the closing of the Transaction, Olympus plans to implement structuring reforms to the Imaging business aiming to change the business structure of Imaging business to be more profitable and sustainable. We are currently investigating costs and other impacts of the structuring reform. If any future event which requires disclosure arises, Olympus will announce it promptly.