TOKYO — More than two months after Olympus’s former president blew the whistle on a huge accounting fraud, Japanese authorities raided the company’s headquarters here Wednesday, emerging several hours later with boxes of documents.
TV cameras crews, tipped off in advance, were in position outside to watch dozens of investigators in dark business suits pour into the building. But it is likely to take more than symbolic action to assure foreign investors that the company will address a scandal that has caused the company’s stock market value to drop by half since early October.
Olympus is said to be looking to raise capital from a domestic investor, a move that would dilute the influence of overseas shareholders, while making fundamental changes less likely.
In fact, some foreign shareholders say the reaction to the scandal is shaping up to confirm overseas investors’ worst fears about Japan Inc.: that entrenched executives will thwart any attempts at reform, with their business-as-usual attitudes given the tacit endorsement of friendly bankers and staid Japanese institutional investors.
The eventual Olympus salvage plan could even be a Japan-wide effort. This week, the Nikkei business daily reported that Olympus might issue about 100 billion yen (about $1.3 billion) in new preferred shares, and that Japanese technology companies like Fujifilm or Sony might be possible buyers. Those two companies, though, denied that any such investment was in the works.
Foreign institutional investors are on edge. “The incumbent board should not be allowed to sell off Olympus’s independence on the cheap to protect its own interests,” an American fund manager, Southeastern Asset Management, said in a statement this week. “Allowing it to do so would deal a severe blow to the reputation of Japan’s capital markets and corporate governance,” said Southeastern, which holds about 5 percent of Olympus shares.
Top Olympus executives acknowledged last month that the company had conducted a decades-long effort to cover up $1.7 billion in investment losses in a global scheme that sparked public investigations on three continents. Last week, Olympus acknowledged some of the losses in five years’ worth of revised statements, which showed shareholders’ equity plunging to just 42.9 billion yen and casting a shadow over the company’s long-term viability.
Three executives implicated in the scheme have left the company. But the rest of the Olympus board has been scrambling to retain control of the company. Backing them are the country’s biggest banks, which hold great sway over top Japanese corporations, serving as major lenders and as major shareholders.
The Sumitomo Mitsui Financial Group is the biggest lender to Olympus with 227.5 billion yen in outstanding loans and bonds, according to Reuters, and also holds a 3.4 percent equity stake in the company. Olympus’s other main lender-cum-shareholder, Mitsubishi UFJ Financial Group, owns a 7.6 percent stake and has also stood by the company’s management.
Together, they are likely to bring in a new domestic investor to inject more capital into the company — a bid to diminish the role of foreign investors in shaping the company’s future, according to several people briefed on the plans. That has caused dismay among foreign shareholders, who say the current management is tainted and should leave, for the sake of robust corporate governance.
It is unclear how many Olympus shares are controlled by overseas investors, but analysts say the proportion could be significant.
Officials at Sumitomo Mitsui and Mitsubishi UJF declined to comment Wednesday.
Any moves by Olympus to inject new equity into the company might also thwart efforts by the whistle-blowing former chief executive, Michael C. Woodford, to return to the company’s helm with a new slate of directors. Mr. Woodford, a British national, was fired in mid-October after he questioned the Olympus board over a series of unusually large acquisition payments that were later found to be part of the company’s cover-up.
Mr. Woodford has said he had enlisted “impressive” members of the Japanese business community to join his prospective board and had outlined his own plans to raise capital, either through private equity or a rights issue.
But working with private equity firms, especially from overseas, may not go down well with Japanese investors, who often see them as vulture funds looking to feast on weak Japanese companies and sell off their assets piecemeal.
Article source: http://www.nytimes.com/2011/12/22/business/global/prosecutors-in-japan-raid-olympuss-headquarters.html?partner=rss&emc=rss
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