TOKYO Oct 21 The $687 million fee Japan's
Olympus Corp paid its financial advisers for the $2.2
billion purchase of a British medical equipment maker is one for
the record books, literally.
The payment is the largest M&A fee ever made, Thomson
Reuters data on fee estimates shows, surpassing the previous
record of $217 million involved in the 70 billion-euro takeover
in 2007 of ABN AMRO by RFS Holdings, a vehicle set up by Royal
Bank of Scotland and others.
"That number can't be right," the Asia-Pacific head of M&A
at a large European investment bank said of the Olympus fees.
The banker declined to be identified due to the sensitive nature
of the matter.
Olympus made the payment to obscure advisory firms as part
of its $2.2 billion acquisition in 2008 of Gyrus, the medical
The payment is equal to about a third of the acquisition
price, jaw-dropping by normal standards where advisers usually
take home about 1 percent or less of the transaction value for
their M&A advisory services.
The payment is at the heart of a scandal at Olympus that
prompted the endoscope and camera maker on Friday to say it
would set up an independent panel to examine its past M&A deals,
responding to shareholder demands for an explanation.
Last week, Olympus announced it had fired its British CEO
Michael Woodford over management issues after just two weeks in
the job. Woodford says he was fired after querying the payment
and has called on authorities in Britain and Japan to
investigate. Olympus denies any wrongdoing.
Standard M&A fees start at 1 percent for a roughly $500
million deal, and then go down, the larger the transaction. On
average, a $3 billion deal would result in a 50 basis point
advisory fee, or $15 million.
The Olympus deal was unusual because a large portion of the
payment to advisers was in preferred shares that ballooned in
value, ultimately raising fees from an originally agreed $100
million, according to a PricewaterhouseCoopers report
commissioned by Woodford.
"This is not business as usual," said a Tokyo-based M&A
banker, who spoke on condition of anonymity. "Everyone is
surprised by this fee. It is in no way in the normal range."
In a statement on Wednesday, Olympus gave a breakdown of the
$687 million, making a distinction between what it considers
payment for financial advisory services and payment for the $443
million jump in the value of the preferred stock.
But even the difference of $244 million that it defined as
remuneration for advisory services would be unprecedented.
Olympus said it paid its advisers a basic fee of $5 million
in June 2006 to unearth targets and provide standard services.
In an Oct. 11 letter to the board, Woodford says it was the
creation of a new agreement in June 2007 that led to the
That agreement set the completion fee at 5 percent of the
target value. Of that, 15 percent would be paid in cash and 85
percent in share options and warrants.
The next payment was a $12 million cash bonus on Nov. 26,
2007, one week after the deal was announced. The transaction
closed on Feb. 1, 2008.
In September 2008, Olympus bought the warrants for $50
million and issued preferred shares to settle the options that
were valued at $177 million.
Olympus has not given details on the identities of the
advisers other than acknowledging that the fees were paid to two
firms, AXES and AXAM Investments.
In the letter, Woodford says the advisers insisted on
preferred stock as part of their payment. Olympus agreed, going
against the advice of auditor KPMG and Weil, Gotshal & Manges to
pay cash. The decision proved costly.
In November 2008, Olympus was asked to buy back the
preferred shares at triple their $177 million value of just two
months earlier. Olympus sought the advice of Shinko Securities,
which estimated the value at $557 million.
Olympus eventually bought back the shares for $620 million
in March 2010, bringing the total payout to the advisers to $687
(Editing by Muralikumar Anantharaman and Neil Fullick)