Wednesday, November 23, 2011

A look at Olympus

I want to use Olympus in class, so I put together a short recap from various sources:

From the BBC:
"The Japanese camera and medical equipment company, Olympus, has admitted to hiding investment losses dating back to the 1990s. The revelation came after the firm's British president, Michael Woodford, went public with allegations that the company had wasted $1.4bn (£880m) on buying companies for inflated prices, as a way of covering up old losses. He was subsequently fired. The company's shares plunged in value when Olympus bosses confirmed the attempts to conceal losses and apologised

BTW the BBC piece is an absolutely great interview with former CEO Michael Woodford which will be the part of another class on Japanese governance which is rapidly being shown to be far from adequate.

From the Economist:
"The scandal first hit global headlines on October 14th, when Michael Woodford, a Briton who had recently taken over as Olympus’s boss, was sacked. Mr Woodford had just told the board that the unusual payments merited investigation....Olympus’s shares fell 29% on November 8th, their daily limit. They are now 80% lower than before Mr Woodford was ousted. The Tokyo Stock Exchange has placed the firm on a watch-list for delisting."
From CBSNews'Is Olympus scandal tip of a Japanese iceberg?

"No corporations like losses (unless the engineered kind that reduce taxes). Announcing them to investors is painful, so you can understand why executives might want them to go away. But there's a big difference between wishful thinking and corrupt financial engineering, which is what some people at the top of Olympus allegedly did.
Although the details are still sketchy, apparently Olympus had suffered decades of losses on investments. Instead of admitting to one level of ineptitude, a few executives took things to a whole new level. They covered over the losses and then disguised them as acquisitions. Oh, they acquired companies, but the prices were sometimes outrageously high and the size of the fees to advisors, stunning."

From Time:
"...a publicly listed brand-name corporation spends hundreds of millions of dollars to buy companies that at the time of the acquisitions have zero revenue and dubious assets. That's what Olympus...did.......Japan Inc. is notorious for poor board and shareholder oversight. While the apparent lack of credible checks on top management is not unique, the details of the Olympus case are still stunning. From 2006 to '09, Olympus made four acquisitions, three of which had nothing to do with the company's core businesses, which are digital imaging and medical paraphernalia. Those three outfits, for which Olympus paid close to $1 billion.....In the fourth case, Olympus, after acquiring a British-based medical-instruments company for $2.2 billion in 2008, forwarded $687 million as "a transaction fee" to two investment bankers — also into a Caymans account that subsequently vanished.Read more: http://www.time.com/time/magazine/article/0,9171,2098601,00.html#ixzz1eVbSgwWH

While some are saying the faked transactions were shams to cover past losses, some are now wondering if they weren't payments to organized crime. Bloomberg addresses this in a piece that covered Warren Buffett's trip to Japan to consider buying some firms. There he was asked about Olympus. He said it was not a a reason to avoid Japan stocks as a whole, but Bloomberg.com wondered.
Buffett Is No Match for Mobsters With Tattoos: William Pesek - Bloomberg:
"Olympus, as venerable a name as there is in Japan, demonstrates the point. Investigators want to know what happened to at least $4.9 billion they say is unaccounted for at the camera maker. Of all the bizarre questions surrounding this sordid tale, the role of organized crime groups, or yakuza, is the most tantalizing. Police are looking into how much of the missing cash went into the pockets of these gangs."
and then this:
"With their full-body tattoos and amputated fingers, the yakuza have long held a unique place in the public imagination. Unfortunately, that goes for Japan’s economy, too. Adelstein calls the yakuza “Goldman Sachs with guns” because of the prowess with which their groups’ roughly 80,000 members infiltrate companies through extortion and intimidation. "
Olympus for their part maintain that money did not go to "anti-social" groups (i.e. organized crime).

Stay tuned.


Note to my classes: if you are still looking for a case, this would be a good one.
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