Tokyo stock exchange warns Olympus could be delisted

TOKYO Thu Nov 10, 2011 2:47pm EST

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TOKYO (Reuters) - Tokyo's stock exchange has warned scandal-hit Olympus Corp it will be delisted after 62 years as a publicly traded company if it fails to report earnings by December 14, deepening concerns about the camera-maker's future.

Olympus said it was unlikely to issue results by an earlier November 14 filing date, but it aimed to meet the later deadline, averting a delisting that its largest foreign shareholder, Southeastern Asset Management, said would have "vast negative ramifications" for foreign investment in Japan.

Southeastern, which owns about 5 percent, has called for an extraordinary meeting of shareholders to sweep out all the remaining directors and its internal-audit board after the company admitted on Tuesday to a decades long cover-up of securities losses that is being investigated by authorities in Japan, Britain and the United States.

Tokyo police will also look into the scandal, the Yomiuri newspaper reported on Thursday.

The report said police had asked Olympus for internal accounting documents and it would question Olympus executives to determine if financial laws were violated.

Olympus received a letter from shareholders on Wednesday calling upon it to sue 21 former and current executives for $1.8 billion if it finds they were in breach of their duties over the affair.

Josh Shores, a principal at Southeastern Asset Management, agreed that the responsible directors, not the company itself, should be sanctioned, protecting the sound parts of Olympus "for the good of the public, the staff, not to mention the shareholders."

The scandal, which erupted on October 14, has raised doubts about the outlook for the once-venerable company, which has since lost more than $6.7 billion, or 80 percent, of its value.

Experts said the only future for the 92-year-old firm might be a takeover, though buyers would likely steer clear until the dust settles.

"Delisting does not mean it can't survive, or that it would definitely be forced to declare bankruptcy," said Hiroyuki Fukunaga, CEO of investment expert Investrust. "It has lost a lot of capital, but its businesses still have high value.

"Potential investors can't consider buying out the businesses until all of the investigations are complete."

Olympus has to delay its November 14 earnings announcement because its external auditor, Ernst & Young ShinNihon, will not have the information needed to sign off on the accounts, sources with knowledge of the matter said.

The auditor would want to wait for an independent panel appointed by Olympus to complete a review and the expected restatement of past earnings before signing off on its latest results, the sources said.

GLUT OF SELL ORDERS

The Tokyo Stock Exchange said it had placed Olympus on a supervisory list and demanded the company report earnings by mid December or be delisted.

Supervision is designed to prevent short-selling of a stock, but such trading had already been suspended by Japan Securities Finance, the processor of margin transactions.

Lawyers said if the third-party panel found Olympus made material mis-statements in its accounts, delisting would be almost inevitable.

Tokyo police would work with Japan's markets watchdog, which is already investigating, and with Tokyo prosecutors, and swap information with the U.S. markets regulator and the FBI, the Yomiuri newspaper added.

Olympus was first listed in 1949 as Japan embarked on a rebuilding effort following World War Two.

Its shares were untraded on Thursday because of a glut of sell orders. The shares were marked down by their daily limit to 484 yen, a decline on the day of 17 percent.

The stock price started falling in October after sacked chief executive Michael Woodford went public with assertions Olympus had improperly accounted for $1.5 billion in payments related to mergers and acquisitions.

He said he was sacked for questioning the payments, though Olympus said he was dismissed over management issues.

For weeks, Olympus denied wrongdoing after Woodford turned whistleblower, but stunned investors on Tuesday by revealing it had used M&A deals to hide securities investment losses. The Nikkei newspaper said these may have exceeded $1 billion.

The firm said the revelation came to light through the independent inquiry it had commissioned, and it blamed three senior executives. Two of those executives were former president Tsuyoshi Kikukawa, who has quit, and ex-vice president Hisashi Mori, who was dismissed. Both are still directors.

SHAREHOLDERS WANT ACTION

The scandal has rekindled criticism of Japanese corporate governance, and authorities worry about the fallout on other companies.

"I fear this is inviting a major loss of confidence in Japan's capital markets," said ruling Democratic Party lawmaker Shinsuke Amiya, who is a member of a new party task force looking into possible legal changes as well as perhaps revising listing requirements and boosting the number of securities watchdog inspectors.

Investor pressure has mounted for a change of management.

UK fund manager Baillie Gifford & Co, which says it holds more than 4 percent of Olympus, called on the firm to reinstate Woodford, who had only been in the CEO's job for two weeks.

"What Olympus needs now is a thorough clean-up, and we believe Michael Woodford is the best man for the job," Baillie Gifford partner and its head of developed Asia equities, Elaine Morrison, said in a statement.

"The current management of Olympus has been discredited by its original response to Mr. Woodford's allegations and its poor communications with shareholders. We expect all directors or employees linked to this wrongdoing to be dismissed and have their ties to the company severed."

M&A experts and market analysts said potential buyers for Olympus, which has 70 percent of the global market for gastro-intestinal endoscopes, would steer clear until they knew what other problems might be lurking in its books.

"The camera business is not profitable as a whole, but Olympus has an endoscope share that companies envy. Olympus' debt load is what could stop them in their tracks," said Fujio Ando, senior managing director at Chibagin Asset Management.

A report from Jiji news agency on Wednesday that creditor banks were considering changing conditions for their loans increased the uncertainty, although a banking source said it was too soon to consider specific action.

Olympus, founded as a pioneering Japanese manufacturer of microscopes, branched into cameras in the 1930s and two decades later expanded into gastrocameras, which became its mainstay profit earner. The Olympus group employed 39,727 people as of March this year.

(Additional reporting by Mark Bendeich, Chikafumi Hodo, Lisa Twaronite, Taiga Uranaka and Mari Saito; Writing by Linda Sieg; Editing by Dean Yates, Neil Fullick and Will Waterman)

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