Reuters/Tokyo
Olympus Corp told investors that it may take legal action against ousted chief executive Michael Woodford, accusing him of disclosing confidential information in media interviews where he discussed alleged improper M&A payments.
Woodford: facing legal action
“He has disclosed information that a director should not be revealing and it’s a very serious problem for the management of the company,” Hisashi Mori, executive vice-president at Olympus, told investors and analysts in a conference call yesterday, an investor who joined the discussion said.
The latest salvo in a publicly fought battle between Woodford and his former colleagues gives a rare glimpse into the inner workings of a Japanese boardroom and finds Olympus executives struggling to assure shareholders that are dumping its stock.
Its shares plunged by one-quarter yesterday after media reports quoted Woodford accusing the board of firing him for probing allegations of improper payments related to acquisitions.
Combined with 18% fall on Friday when Woodford’s ouster was announced, the stock plunge has wiped out $3.2bn in market value from the Japanese precision instrument and camera maker.
Mori apologised for the share drop, said the investor, speaking on condition he not be identified as the call was closed to the media.
Media reports quoted Woodford as saying that financial advisers in Olympus’s purchase of British medical equipment maker Gyrus received $687mn, or 36.1% of the transaction price.
Mori told the conference call that the amount paid, which included cash and options, was less than half that. Mori, nonetheless, conceded that the fee was high, while he declined to give an exact figure.
Michael Woodford, 51, was sacked just two weeks after the company promoted the Briton from his role as president with glowing reports on his performance.
Japanese boards rarely dismiss top executives, so the announcement took financial markets by surprise.
Mori confirmed in his call that Woodford, a 30-year Olympus veteran, had asked him and the chairman, Tsuyoshi Kikukawa, to resign because of fees related to past M&A deals. Kikukawa is replacing Woodford as CEO.
Mori, however, reiterated the company’s statements last Friday that Woodford was ousted because of irreconcilable differences in management approach and for Woodford’s insistence on circumventing business managers.
“This is a very interesting development because obviously there is something very fishy here,” said Nicholas Benes, a corporate governance expert and head of Board Director Training Institute of Japan.
“You’d have to be an idiot to think there is not something very fishy here if he’s (Woodford) not getting an explanation for it and they are not giving it publicly after all this garbage has been sent out into the newspapers.”
The Tokyo Stock Exchange said it would await further disclosures from Olympus, although for now, it “basically accepted Olympus’s explanation on Friday”.
Kazuyuki Miyaji, manager of the TSE’s listed company services division, said the exchange was aware of the uncertainty-induced drop in Olympus shares over the last two sessions and if there were further relevant disclosures to be made, the company would be expected to make them.
The sacking triggered a slew of downgrades from brokerages worried about Olympus stepping back from a commitment to cut costs.
Analysts said the dismissal could deal a blow to the ambitious cost-cutting plans at Olympus that Woodford had championed. He was credited with successfully cutting costs in the company’s European division.
“The dismissal of the president has shattered equity market expectations of structural reform at the firm,” Deutsche analyst Yoshikazu Higurashi wrote in a report.
Olympus’s operating profit dipped 41% to ¥35.4bn ($457.6mn) in the year ending March 31, 2011, as its struggling camera division lost ¥15bn.
Deutsche, Goldman Sachs, Nomura, Citigroup, JPMorgan and Daiwa Securities all cut their ratings on Olympus.
Mori said that there was as yet no plan to find a longer-term replacement for Woodford, which could leave Kikukawa in the role for several months.
Olympus shares ended 24% lower at ¥1,555, their lowest close in two and a half years in a market up 1.5%. More than 54mn shares were traded versus average daily volume of 3mn shares over the past 30 days.
“Olympus was known in general as a fairly respected company and in general, disclosure in Japan, although not great on a global basis, is quite a bit better than Asian disclosure policies,” said Glen Wood, partner and head of sales in Tokyo at JI-Asia, the equities research arm of Societe Generale.
“I think this is a big shock to the market and will have implications for other companies. I don’t think you can look at Japan the same way.”
