Olympus bows to calls to investigate advisory fees

Scandal-hit Japanese firm Olympus yesterday gave in to shareholder pressure over massive fees paid to advisers in a 2008 acquisition, announcing it would set up a third-party panel to examine its past merger deals.

It comes at the end of a dramatic week for the maker of endoscopes and cameras, which fired its British chief executive, claiming management incompetence, only to have him turn whistleblower.

Olympus shares have lost half their value since the shock dismissal of Michael Woodford on 14 October.

The ousted chief executive, who is now back in the UK, has sent dossiers to British fraud investigators about the Japanese firm’s $687 million (£435m) payments to two advisory firms over its $2.2 billion (£1.38bn) acquisition of British medical equipment maker Gyrus, which he says he did not receive explanations about. Olympus has confirmed the payments, but has not explained why such a large fee was required.

Criticism from investors has been mounting, with even normally pliant Japanese stakeholders – such as Nippon Life Insurance, the company’s biggest shareholder – calling for prompt action to address concerns.

Edinburgh-based investment manager Baillie Gifford said: “We encourage the company to make public without delay the composition of the body that will conduct the independent third-party review into Olympus’ merger and acquisitions activity and payment of advisory fees, and to ensure the full and transparent disclosure of the findings of this review.”

Woodford has written to Japan’s Securities & Exchange Surveillance Commission (SESC) asking it to look into the matter. Japan’s financial services minister, Shozaburo Jimi, said yesterday that the financial watchdog would do its duty but declined to comment on individual cases.

In a statement, Olympus said: “We are preparing to set up a third-party panel, including lawyers and accountants, to look into past acquisitions by the company.”

It added that shareholders had been asking for information.

“It looks like a step in the right direction,” said Kiyoshi Noda, chief fund manager at MU Investments. “Investors want full disclosure of what has really happened, because statements from the ex-chief executive and the board differ. So if independent investigators take a close look at past deals and compile a report on that, that should be helpful.

“But it is too soon to speculate whether it would lead to any substantial changes to the firm’s board or management.”

At the heart of the controversy is the advisory fee paid to two firms, AXES America and Axam Investments. The amount is equal to one-third of the acquisition price, compared with an industry standard of 1 per cent to 2 per cent of a deal’s value.