TOKYO/LONDON |
TOKYO/LONDON (Reuters) – A big foreign investor in Japan’s disgraced Olympus Corp (7733.T) voiced its concern on Monday that the firm would bring in a major new investor, in a move that could effectively sink former CEO Michael Woodford’s campaign to be reinstated.
U.S. fund manager Southeastern Asset Management, which holds 5 percent of the maker of cameras and medical equipment, said in a statement it was worried the current board may be gearing up to dilute existing shareholders in a bid to stay in power.
“Any decisions on whether capital is needed and how to raise it should not be made hastily by the incumbent, discredited board, which has clear conflicts of interests,” Southeastern said.
Woodford, an Englishman who was a rare foreign CEO in Japan, went public with his concerns over crooked accounting at Olympus after his dismissal in October, leading to the uncovering of a $1.7 billion cover-up that has left the company badly weakened.
He is now lobbying shareholders to return to the helm, but his campaign has caused an apparent split between major foreign shareholders, who have called for his reinstatement, and major Japanese investors who have lent him no public support at all.
“We are concerned that they want the capital-raise not to shore up the balance sheet but to bring in a partner who would be supportive of their continued control of the board,” Josh Shores, a senior analyst and principal at Southeastern, told Reuters ahead of the statement.
Olympus has said it is considering capital and operational tie-ups, among other options, to relieve the pressure on its balance sheet, which was left badly weakened after setting its fraudulent accounts straight last week.
“If this placing goes ahead, they would be selling control of the company for a third to half of what it is worth, just to get supportive votes to protect the status quo,” Shores said.
The Olympus board has said it plans to resign, though perhaps not in its entirety, and to choose its own successors before then. Woodford and his foreign backers say the board is discredited and has no right to nominate its successors.
Southeastern said Olympus was not in as desperate need of capital as current management appeared to think — and again urged that Woodford be brought back to play some role in improving Olympus’ discredited corporate governance.
“They claim the company needs more capital. The impairments they took were bigger than everyone was expecting but from our perspective, we think they are okay,” Shores said, adding that much depended on Olympus’ legal liabilities from possible shareholders’ lawsuits.
“But there’s absolutely no logic in shoring up your balance sheet by doing a big dilutive capital issuance that disenfranchises third party holders — because if you do that, you’re probably going to push your legal liabilities to the higher end of that range. That same money could go right back out the door in legal settlements,” he added.
“Or you could solve this in the same way we have been pushing for the whole time, an open and collaborative way. Bring back Woodford to be involved with the required changes in corporate governance and the legal liabilities could fall to the lower end of the range,” Shores said.
Olympus’ next CEO and board face major challenges, starting with a need to repair the once-proud firm’s balance sheet, which was revealed last week to be $1.1 billion weaker than had been previously disclosed in its fraudulent accounts.
Olympus shares have more than doubled since hitting a post-scandal low of 424 yen on November 11, but are still down some 60 percent of their value before Woodford was sacked on October 14 and went public with his doubts about dubious MA deals that the company later admitted were used to hide investment losses.
The share price was down 8.4 percent at 920 yen in early afternoon trade on Monday.
(Additional reporting by Linda Sieg; Editing by Edwina Gibbs)
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