Now, here is a news that will make cry the current Olympus shareholders (and me too). According to Reuters: “The payment is the largest M&A fee ever made…surpassing the previous record of $217 million involved in the 70 billion-euro takeover in 2007 of ABN AMRO by RFS Holdings, a vehicle set up by Royal Bank of Scotland and others.” and “The payment is equal to about a third of the acquisition price, jaw-dropping by normal standards where advisers usually take home about 1 percent or less of the transaction value for their M&A advisory services.”
Big Olympus shareholders made a lot of pressure on Olympus and as consequence “Olympus is setting up an ‘independent committee’, made up of lawyers and accountants, to investigate controversial acquisitions following claims made by its ousted CEO“. (Source: AP).
The story never ends. First Olympus “declined to identify the advisers and said it no longer knew of their whereabouts.“. But Reuters found the answer after one day only: “A former Wall Street banker of Japanese descent (veteran banker, Hajime ‘Jim’ Sagawa) has emerged as a key figure in the scandal engulfing Japanese blue-chip firm Olympus Corp, according to documents provided by the firm’s ex-CEO.”
And than we have another news: “Ousted Olympus Corp chief executive Michael Woodford is consulting police over whether he needs protection after passing “new information” to British fraud investigators about the Japanese company’s irregular payments to advisory firms.” (Source: Reuters).
I think what we are experiencing here will lead to a revolution inside Olympus. The market doesn’t trust the board anymore and that situation cannot last. On the positive side, this may be the BIG chance for Olympus to make a new start with new managers and new ideas. I think within the next couple of months we will see huge changes!
56 Responses
I think an outside entity needs to Occupy Olympus!
Perhaps Woodford was named CEO to be the fall guy. Two weeks on the job and he’s canned? Yeah, that screams “fall guy.”
We the people could easily bailout Olympus. Liquidate each product for 100 quid or less. “Sales reps are standing by to take your order.”
<sorry>Best chance to get a Pen-PRO with built-in EVF at last?</sorry>
Ok it’s terrible.
admin – title needs to say ‘$687m’ rather than $687. that would be a cheap fee!
I just hope the current product strategists arent in the board, and the current trend for decent pens and fast prime continues!
Yeah that makes more sense, and at the same time it really doesn’t.
$685M… WTF !
Man with all the advice i have given to people in my life i should have a advisory fee at least that high ! 😉
The Olympus camera division has been losing money for a while. If new management comes in they are probably going to axe it unless they see the potential for real profits. I believe the founder of the four thirds format is involved in the scandal so he may go and with him, the camera division.
Well, the question is why they have been losing money. I am confident that with USD687 million, they could have developped competitive products.
The camera division has been losing money because they never invested in marketing, never produced f/1.4 or f/1.2 lenses, and never produced a prosumer zoom beyond 200mm. Also, they had over 20 models of compact cameras at any given time.
I’m pretty sure they could have bought a couple of extra ads for 700 million dollars.
But why purchase ads when you can steal the money? Pfft.
Perhaps Oly was using the same tricks that News Corp used in Europe. Pay another entity money, who turns around and buy the former’s product to make the marketshare seem larger. It may be fraud but may not involve criminal gangs or lining the pockets of some execs.
Admin, it’s far too early to pass judgement. According to a ‘forensic accountant’ specialised in these matters, it is quite common for companies to accumulate black funds abroad.
They help evening out losses, when needed. If the operation had been completely illegal – theft- the directors themselves should have protested, but they didn’t.
If you were a journalist you would wait for the findings of the enquiry commission, to know if those funds are still available to the company or not.
> it is quite common for companies to accumulate black funds abroad.
Wait what? You mean hide money from its owners, the stockholders? and avoid the taxes? How that can be remotely legal, even if “common”??
It is indeed common, as are a number of other maneuvers that push costs and income around regionally. The problem is that it isn’t disclosed and it may violate laws (it certainly flies in the spirit of the law).
But I’ll remind people that the Gyrus adviser fee isn’t the only problem the Olympus board has to explain. There’s a pattern of decisions that raise eyebrows, and the overall numbers we’re talking about are significant to Olympus’ disclosed financials.
> “it’s far too early to pass judgement.”
Come on. “The largest M&A fee ever made” – larger than the one paid for for the 70 billion-euro ABN AMRO takeover deal. This should have been peanuts compared to that. And all that money that paid to a Cayman Island company that vanished two weeks later….
I’m just surprised the Olympus directors implicated aren’t already being held in custody without bail.
Ricoh bought pentax for 124m. for 687m dollars, Olympus could have bought 5 pentax. They wasted stupid amount of money for nothing, that’s very crazy!
For get about Pentax, they could of bought Leica Cameras and Pentax for that and had a bunch left over to get a sensor fabricator plant. In the corporate world camera companies seem to be cheap.
The problem with Olympus Cameras is it is to big to be bought be a smart individual savour like Dr Kaufmann did with Leica Cameras. Considering it could be very profitable for a long time if it gets good distributorship.
An independant inquiry ….”Set Up”…. by Olympus. Screams of whitewash and cover-up. I’m not buying it. An independant inquirey is not “Set UP”. by the questionable parties….. and if it is it isn’t worth the paper it’s printed on.
It depends on who is appointed. As Olympus is mostly owned a a few institutional investors, they may be forced to appointed some well regarded individuals. CPA firms are not the end all of forensic auditing, but more importantly it is the individual examiners that make a quality investigation. Financial auditing is not forensic auditing. These individuals can be in a big 6 (or is it 5 now) accounting firm or not. There should also be representation on the group of all major stockholders (ones that hold over 5%) IMHO.
The other reason that Olympus may appoint a good group is that they are in all likely hood will be reviewed by the UK serious fraud unit (a good group there) as well as Japanese regulators. We should find out next week.
The sad part was that Olympus was doing OK with all this apparent bad management. All major divisions, including the imaging division. were profitable as reported so far this fiscal year.
Olympus is “mostly owned by a few institutional investors”, you say?
Here’s a list of recent percentages of the top shareholders: 8.2%, 4.8%, 4.7%, 4.4%, 3.3%, 3.2%, 3.0%, 2.8%, 2.5%.
Yes, it is based on this http://www.olympus-global.com/en/corc/ir/annualreport/2011/pdf/11.pdf do you have newer results. Note many of the large categories need to be combined when you go to who controls the stock.
It shows “Japanese financial institutions … 49.69%” of ownership and over 10 from other Japanese corporations. And who they borrowed all the money from should be taken in to account, I have a list of them somewhere and will post if I find it.
This affair is reading like a John le Carre spy novel. Where it’s going end up is anybody’s guess at the moment.
I meant the Securities Commission’ enquiry, not the internal one. There will be two different ones.
At any rate I was reporting what the accountant wrote @ DPR.
IMHO there is far too much schadenfreude by people, Panny’s henchmen or other, that would rather see a competitor disappear – a maker of fine cameras. Whatg a shame!
Finally the deal was with the endoscope division, it didn’t have anything to do with the camera division. For all we know the latter might actually do very well.
One should be careful to give carefully verified information, instead of unwarranted smearing, or else it’s no journalism at all.
> IMHO there is far too much schadenfreude by people
My personal schadenfreude I can explain.
Oly doesn’t make a camera I want to buy and changes inside the Oly might mend that. So I’m happy that Oly undergoes the shake up. Because if they do not reform themselves now, to me they are as good as gone from the market.
“I think what we are experiencing here will lead to a revolution inside Olympus.”
Or breakup of the company. Anyway, I think the ILC division is pretty healthy at the moment and a takeover of it by the people who wanted to make it more profitable could only lead to better products. If Fuji was to buy it, for example, it would complement their current lineup. The worst thing would be a takeover by manufacturer which has already established mirrorless system ( Panasonic, Sony, Samsung, Nikon ).
Olympus Imaging is not just Pen cameras. Anyone considering making a bid for them has to consider how much overlap they’d have in the full lineup, which includes a lot of compact camera volume still. Olympus Imaging becomes far less valuable if you acquire it only for Pen stuff. Moreover, there’s the issue of the lens bits: the optical plant does optics for more than cameras, and I don’t think it’s an easy split out.
If Panasonic buys up Olympus, they may have no need to work with Leica for anything anymore. It would be a real strategic boost for their camera ambitions.
Leica Cameras would of cost significantly less then Olympus Imaging Division for Panasonic to buy. I never understood why one of the large Japanese Electronic corporations did not buy up Leica (for less then 100 million) when it was more or less up for sell a flew years ago. Maybe they could not afford the merger and acquisition fee of 1 billion, which AXIM want to charge :). Seriously, glad they did not; Dr Kaufmann (the purchaser) is my hero.
Panasonic would like all of Olympus for the right price, as would Fujifilm , Canon; they all have a medical side.. The difference is Fujifilm or Canon have the finances right now. Fuji would be the best fit for a complete take over all the companies that have a camera division. But with merger and acquisitions come less innovations and competition.
No company in their sane mind would own Leica. It is too much of a niche company to justify any value-addedness.
And let’s divorce personal wishes shall we? We all know that Panasonic is bigger than Fuji and Canon combined. You want Canon to buy Olympus? You will see the death of M4/3 instead.
No sane company in their right mind would produce a 1DX or D3s, either, using your logic.
You’d buy it for the high-end halo product and try to extend the well-known brand downwards. Panasonic already has evidence that Leica can sell the Panasonic point-and-shoot cameras for more money than they can ;~).
1DX and a D3s is far more mainstream than even a Leica M9. Leica is currently marketing itself as a rich-man’s boutique manufacturer. The last time they tried extending the Leica brand to more mainstream products (e.g. Panasonic L1), it failed utterly.
That’s a bit like saying a Porsche is more mainstream than a Ferrari.
The huge bulk of the DSLR market lies in the range up to the D7000. As in 90%. To my knowledge, the full frame cameras never cracked 5% of the interchangeable lens camera sales, and with the advent of mirrorless, that number has actually gone down.
Leicas are nice cameras. While I have mostly used my real old film Leica rangefinder stuff, last week I used an S series for the first time; which was owned by someone who drives a Honda Accord, not a Rolls or even a Bimmer. I found the S series is really an outstanding tool and it is a pleasure to use. It did the job and her client was happy.
As tools for a professional they are not that expensive, comparable in cost of the tools and garage a good auto mechanic needs today. When it comes tools there are two schools of thought:
1. A worker is only as good as his tools.
2. A poor worker blames his tools.
Minolta and Panasonic both have done well in prestige by associating with Leica. Leica does not have to be a large market share leader to be relevant or important in the optic world. Look at what Cosina did with just the associating with Vogtländer name, a company that really has not been around for over 40 years.
I would be the first to tell you that the cameras are not for everybody or most people, but that does not mean there is no value in owning the company.
And oh, Fuji doesn’t believe in M4/3 either. So either way, the only company that stands to gain from the purchase of Olympus is Panasonic and it is in their interest to buy them up.
And Fuji doesn’t believe in M4/3 at all. The company that has the most at stake here is Panasonic and expect them to come out strongly to grab the company.
“And Fuji doesn’t believe in M4/3 at all” I assume you say this as they aren’t likely to produce a M4/3 cameras system.
Why would they want to produce a camera line that has two establish players already making a bunch of lens and stuff for it. They seem to have decided that level of performance is well served with Olympus and Panasonic currently, so they are going for a product that has better performance. Just trying to find a place in the market (market placement).
This is different from getting a significant share of a market, then going with it.
But importantly Fujifilm and Olympus are a lot more then just cameras. In the last couple of years Fujifilm has been very active in trying and succeeding “M&A” ing medical supply firms. I think just about everyone in that industry wants to combine. They also could use the production ability of Olympus.
If you look at who owns Fujifilm and Olympus you will see a bunch of the same entities. Glancing at just the Annual Reports you will see an overlap of over a third.
Panasonic is also in the medical industry as and just about every company there would like to get bigger in it, but not as much as Fuji. I am not sure what they would do with the camera division other then use it to make their own stuff. Having to very similar items, that are slightly incompatible in a camera product line does not sound that appealing.
This link was left out of the above reply. http://www.bloomberg.com/news/2011-10-20/olympus-37-less-than-medical-unit-seen-luring-bidders-real-m-a.html it is the only general news release from buyers I have seen. For the most part I agree with the quotes form the analyst mention in the article. Panasonic was not mentioned, Fujifilm and Canon were. Maybe even Blackstone, GE and Leica are involved they seem to be keep coming up in news together expectantly a lot recently, who really knows.
I still think it is more then likely that Olympus will survive. There are some potently some good arguments to be made about the transactions, they just aren’t good press.
From the article: “You cannot invest carelessly in a company where corporate governance seems dysfunctional.”
This was my point in another reply, down lower. Not only would you be acquiring a company if you bought Olympus, but it appears you’d have to completely replace the top end of management. A few companies may find that attractive, many won’t. I think you’d have to already know exactly how you’d integrate Olympus into your operation to make a bid at all, and that thinking would have to include “remove all of top management.”
Thom,
One thing I found very interesting in the last quarter financial Olympus report was Olympus Imaging was the only division that appeared to doing better then the previous quarter and year. The Imaging Division was reported as selling more Pens and XZ-1s and less compacts; as the Pens have a higher margin that may explain it. Maybe, there are other issues but most likely it is just results of the Earthquake. When the results of quarter that ended last month is released it will be very interesting and will make interesting reading.
Looking at my previous reply it was not as clear as it should of been. I agree with what you are saying. What I tried and failed to clearly point out: It is different for the Fujifilm camera division to be handed the Pen line of m43 cameras, by their corporate headquarters acquiring all of Olympus, then going out to establish from scratch their own line m43. I would like them to start their own m43 line from scratch, but I am sure their mirrorless development is related to the x100 sensor (not theirs?), image processor and software. One gets the feeling with them, that the camera division is the corporate hobby; which is OK with me.
As far as sensor. most compact cameras being sold are beginning to seem the same, maybe a lot are OEMed by some one, with a coupe of changes. I use to find them all quite a bit different. The margins on their sale must be very small right now.
There seems to be many advances in sensors coming both in design and maybe more importantly in manufacturing them at a low price. In the past, I know that some of Fuji cameras were made for them, and they made other cameras for other companies; so not making their sensors, when they can, seems like Fuji.
While Canon name is also put out, as well as a lot of not camera companies, as a potential buyer the reason I think in the end they would be less likely is their current stockholders. Based on their US SEC filing they do not share as many of the same owners with Olympus as Fujifilm. Still I am sure someone there right now is crunching the numbers and seeing if they should be interested in taken over Olympus.
Unfortanetly, I think the Imaging Division will just be in it for the ride if Olympus get in an ownership war. It is a good thing for Olympus that they are in debt or the war would already be going on or maybe even over. As far as corporate governance, I found a lot more information readily available from Canon then Olympus. Reminded me of one of my favorite quotes “Sunlight Is the Best Disinfectant,” by U.S. Supreme Court Justice Louis Brandeis.
> Why would they want to produce a camera line that has two establish players already making a bunch of lens and stuff for it.
It depends upon how you expect to differentiate. This is a bit like saying “why would you want to build an Android phone or a Wintel PC.”
The answer seems obvious, but apparently Fujifilm has very low self esteem: the sensor. They even has this problem in their compact cameras, where they don’t always use Fujifilm sensors any more and thus start to have very little differentiation ability.
If you’re going to compete against between a half dozen and a dozen other companies in a market, you’d better have a better story built around your own completely controlled differentiation. Otherwise it becomes a price war game, and the biggest, most vertically integrated tends to win.
Instead, Fujifilm now seems set on a course of “we’re different because we design cameras that are retro.” But even THAT would play in m4/3.
Well, the news of the preposterous “consulting” fees pretty conclusively move Woodward’s comments from “could be just an angry ex-CEO who didn’t get his golden parachute” to “it’s probably as bad as he says it is.” Makes me sad to see a company whose hardware I use and like doing something so obviously shady and nepotistic.
My wife, who is Japanese but has no particular knowledge of Olympus, commented on the news that it didn’t sound the least bit surprising–the old boys’ club among top execs in these old-school Japanese firms are apparently notorious for self-serving if not outright illegal kickbacks and insider payouts. They’re probably not technically Yakuza, but just as insular and sleazy.
Honestly, if you’re making US-based CEOs and their absurd “bonuses” for doing a miserable job look GOOD by comparison, that’s taking greed to a whole new level.
should of known wall street was behind this!
This may become a case of “be careful what you wish for.” Change may indeed be coming but it might not lead to a new start but an implosion of Olympus and the end of it as an independent company.
This incident might actually be a good thing for Olympus and m43. Since I suspect that financial complications as a result of that huge advisory fee might have been the main reason why Olympus has been lagging behind in innovation in some key areas, e.g. the belated new sensor.
Dear Olympus board directors, I am willing to buy your company for £1 – plus negotiable consulting fees paid into a separate account of your choice 🙂
The latest news reports is that Woody wants to be CEO again. Well who a thought. He really thinks to much of himself. Kind of shows what his motives really are.
Now he wants police protection, like a Bobby can help his car from not driving over a cliff due to a defective guard rail or him mistakenly putting a plastic bag over his head; oh wait this is not the US :).
He is beginning to sounds a little paranoid with delusions of grandeur, maybe he can’t get his Japanese prescriptions filled in the UK. Dam it would be fun to interrogate him. Not to say his main charges that Olympus management is bad are wrong, after all they appointed him.
I have seen this pattern before, where an individual (who we will say is integrity challenged) appoints an other individual as his immediate subordinate who has some personal issues like Woodford, where appointing individual gets prosecuted in the end.
Then there are the examples I have dealt with where an individual keeps on saying they have great ethics and is let go. Goes to the Press and puffing about potential wrong doing etc., being careful not to state fraud or criminal activity (which could be actionable against them in a possible civil suite). Of course they really are out for revenge at all cost (including self destruction) and even less ethics then those that forced them out. Going by these two examples and the timeline I made up, I think it is more of the later, due mostly to no direct accusation of fraud or criminal activity by Mr Woodford it is more of the later; but the prior and current Olympus seems bad anyways. Who knew what and when are the questions to get to the bottom of this, and of course the old standard “follow the money.” (or should it be “. — is this board in the UK or US?)
It is good work for the financial forensic examiners :);
but Olympus would be better served with them all out now and a clean sheet of paper to continue. Olympus can not afford for this to continue more even a month and I do not see how it can be concluded to fast by a good investigation. It truly is sad to see this happen to one of the great innovative companies of the world.
Again, it doesn’t matter what Woodford’s motives are. He only served to escalate an issue that was already brewing for Olympus, but had been successfully stonewalled so far.
You are correct. Full and complete admission is the right course of action for the company. Unfortunately, it would appear that to do so would require the top executives in the company to admit illegal actions AND covering them up. So it can’t happen that way. More likely would be early retirements and resignations, but that still leaves a real issue: who the heck in the organization has no taint and could run it? It’s not as if you’re going to bring in an outside board, outside chair, outside CEO, and outside COO all of the sudden. Be easier to sell the company.
If Olympus structure is similar to US corporations the CEO and CFO would have direct knowledge of the transaction at the time as well as some staff members.
But during the initial annual financial audit it was brought to literally everyone’s attention. Then Olympus set up an internal audit committee of the transaction, now you have a whole lot of people that should have significant knowledge of what transpired; and were ethically if not legally required to disclose any malfeasance discovered. Also in a corporation the size of Olympus there are no secrets for long.
One would have to show that there was no due professional care to show civil blame in the east, I think it is a little different in Japan. And for fraud (criminal) intent. It would not surprise me if this can or will not be shown.
As far as replacing the board it would be hard but not impossible, it depends on who know what and when. It also depends on what really went down; in all honesty we do not even know half the story so far, if it was as bad as it first appears the initial financial audit would have more then likely pointed it out more explicitly. A board consisting of more Jr members of the company (many outside directors will never fly in Japan) and some outside banking directors be a shot in the for the next decade for the company.
As far as my discussing possible motive it is just to demonstrate that there are no angels here; and his overall lack of ability. Early retirement; the chair who is 70 years old, judging by pictures other members of the board are in their late 60. Not early enough it seems.
I expect that likely Olympus will survive this and due better despite what happened, but I would not bet dollars to donuts or vs versa on it. If it is sold it might even be better for the Image Division then even if nothing happen. There are numerous suitors besides the obvious for the entire company, the whole is greater then the parts. The Japanese financial community will try to keep it in the family so to speak, and not loose a market leader to outsiders in highly lucrative and prestigious field of endoscopes and the like.
Olympus is done for 🙁
Pany or Sony is going to buy them out. But after the trust is gone and all this business, I seriously doubt they are coming back strong.
Corrupted bastards…
Again I think there is more than meets the eye. Any international company is liable to have some ‘reptile funds’ usually in a tax haven like the Cayman.
Now suppose that O. wants to create a black account abroad. A negotiator’ fee would be a perfectly legal invoice.
Now say that you have an agreement with that negotiator to manage what are still your funds and invest them profitably by private agreement.
That would be still very legit from the POV of the company, if not of the shareholders.
Woodford is on a warpath against the BoD so it might want to damage with things that are usual common practice, but are best left unsaid. For instance for tax reasons.
In the end what matters for us is that funds are not diverted from R&D and new camera projects. For the former I seem to remember that O has a high R&D percentage.
For the cameras witness the latest arrivals: 3 cameras at once, and two new lenses at the same time.
Methinks itis hardly a moribund camera division.
One thinks that the camera division might be sold separately, but it’s not so easy. I read the factory in Japan making HG lenses is the same making endoscopes.
Some also commented that Woodford’s dismissal was a stroke of luck, because he would have killed the camera division.
So who knows that might have been the reason for his dismissal: two many cuts ahead.
Just where do we see results of that R&D?
Three years after the announcement of mirrorless system camera concept (/ceasing to develop 4/3) whole m4/3 product range of Oly is still just iterations of one camera, just like annual updates of car models.
Even sensor is mostly still the same as in last DSLRs with only improvements to read out speed needed by contrast AF.
This lack of diversifying system is like they were waiting Canon and Nikon to pull their corporative thumbs out of their butts and release full mirrorless product range (Nikon One isn’t that) to make sure that when Olympus finally starts to build full system they have uphill battle against established positions of competition just like what happened with 4/3.
“In the end what matters for us is that funds are not diverted from R&D and new camera projects”
I’d suggest that it’s more likely that the above is a complete fantasy – the money is gone.
In the short term there is no way this is going to be a positive result for m4/3 owners. The camera division isn’t as profitable as the medical and science divisions, so you might just wind up with another Pentax like thing.
Panasonic is doing very consumer and video things with their lenses, I don’t think Panasonic is going anywhere but the camera division would need to survive 2-3 years to make new headway in a “new direction” I doubt that direction would be something an enthusiast will care about. To go after the small enthusiast market you must ether have a niche product and charge a huge premium for it or be a huge company and do it for prestige (so called halo projects).
Olympus isn’t in a position to do either. Refocusing with a good management team would be nice but it isn’t easy. And a more western less conservative management style probably would have shuttered the money loosing camera division a long time ago.
Who cares who makes Olympus cameras, as long they have IBIS, same mount, good lenses?
As consumers we can just worry that the camera division has no funds to go on. But in Japan and Asia sales are going very well, and that is what matters.
I could easily jump ship to Panny, but for IBIS. Or if I wanted to stay small and mirrorless jump to Sony or Fuji. Thankfully I have no big investment on lenses. Legacy lenses are cheap to adapt.
So do people here protest about the ethics of siphoning profits to a tax heaven? Really? Do you think that the ethical stance of Woodford is better that the one of the other directors? Really, W. has been for 30 years with the company and now all of the sudden he discovers what was under his eyes for years?
I might enjoy a bit of financial journalism on the side, but how does it affect me as a photographer? In this sense, things are getting a bit out of proportion.
In the end what matters is if they are going to keep making their type of cameras or not.
¥1099 down from ¥2500 the end must be near for the board.
http://www.reuters.com/finance/stocks/overview?symbol=7733.T
Our entire society is raped by fraud.
Benjaminfulford.net