* Auditors sign off on documents ... with qualifications
* Olympus not out of the woods yet - fund manager
* Ex-CEO Woodford appeals to shareholders in comeback bid
* Would recapitalise swiftly if reinstated - Woodford
* Stock exchange keeps co. on delisting watchlist
By Mayumi Negishi and Tim Kelly
TOKYO, Dec 14 Japan's disgraced Olympus
Corp ironed out its crooked accounts on Wednesday after
a 13-year fraud, with a $1.1 billion dent in its balance sheet
triggering speculation it will need to merge, sell assets or
raise capital to repair its finances.
The 92-year-old maker of cameras and medical equipment filed
five years' worth of corrected statements, plus overdue
first-half results, just hours before a Tokyo Stock Exchange
deadline that could have seen it automatically delisted.
The most recent restatement, for end-June 2011, showed an 84
billion yen ($1.08 billion) reduction in net assets. Olympus
added that as of end-September, its net assets were just 46
billion yen, down from a restated 225 billion yen in March 2007.
It also revealed a net loss of 32.33 billion yen for the six
months to end-September, further fuelling talk the once-proud
firm would need to move quickly to shore up its balance sheet or
risk becoming prey to a takeover.
"Most probably Olympus has to increase capital. It's best
for the company to merge with others rather than rebuild by
itself," said Ryosuke Okazaki, chief investment officer at ITC
Ousted CEO Michael Woodford, who blew the whistle on the
loss cover-up and is campaigning to get his old job back, said
that if reinstated, he would move fast to recapitalise Olympus.
But he said he favoured private equity or a rights issue
over a strategic alliance. Rights issues -- where existing
shareholders are issued warrants to buy new stock -- are rare in
"You have to look at improving the capital structure of the
company. Because of the litigation risk, you couldn't do that
publicly, so you have (as) options a strategic alliance, private
equity or a rights issue," Woodford told Reuters.
He said a strategic alliance would lose Olympus its
independence, "which I think the employees most of all would not
Olympus President Shuichi Takayama has said he may sell
assets or accept a capital tie-up to bolster the capital base.
Olympus has been dogged by rumours of bid interest
from rivals, such as fellow endoscope makers Fujifilm
and Hoya, or from private equity since it sacked its
British chief executive and the scandal broke in October.
The stock, which has since lost about half its value to
about $4.7 billion, closed down 4 percent on Wednesday.
RELIEVED, BUT NOT OUT OF THE WOODS
"The company might consider recapitalisation because 46
billion yen is a very small amount of equity," said Nanako
Imazu, an analyst at CLSA in Tokyo. "Any significant change in
earnings to the downside or any significant change in the yen
versus the dollar or the euro is a big risk."
Olympus' debt is about 14 times its equity, an
extremely high ratio that compares to less than 1 for camera and
office equipment maker Canon Inc.
Some investors were at least relieved that Olympus had met
the deadline to fix its accounts, without sliding into technical
insolvency at any stage in its restated accounts. Olympus also
assured investors it was able to secure continued funding.
"This is extremely positive for Olympus as it can avoid
getting delisted after meeting the deadline to submit its
earnings," said ITC Investment Partners' Okazaki.
Other investors, though, remained wary, noting that the
exchange could still delist Olympus if it deemed the past
misrepresentations of its financial health were large enough.
"Although liabilities had not exceeded assets, it does not
change the fact that they were window-dressing and, since the
amount involved is so big and the period of time this was going
on was so long, it's difficult to say what the Tokyo Stock
Exchange will do," said Fujio Ando, senior managing director at
Chibagin Asset Management.
"I would not say that fear of delisting has disappeared."
The Tokyo exchange said after the announcements that it was
keeping Olympus on its watchlist for possible delisting.
Some of the restated accounts also came with qualified
opinions from auditors, with KPMG AZSA LLC noting it had been
unable to confirm all the money flows involved in the fraud.
"We were unable to get sufficient and appropriate proof for
auditing on specific assets and amounts," the auditor wrote.
Olympus triggered the crisis on Oct. 14 when it
sacked Woodford, who immediately went public with his doubts
about murky past M&A deals. Woodford is now appealing to
shareholders to support his comeback as part of a complete board
The board has committed to resigning over the scandal, but
wants to choose its own successors before quitting, setting up
the prospect of a proxy war between its own candidates and those
being assembled by Woodford as part of his campaign.
"The shareholding balance is such that there is a realistic
chance we could win a proxy fight," Woodford said earlier. But
he added that such a battle would cause a split between foreign
and Japanese shareholders and he hoped it could be avoided.
"I think it would be harmful because it would show
potentially Japan institutional investors are a club," Woodford
said about a possible proxy battle.
Three big foreign shareholders -- Southeastern Asset
Management, Harris Associates and Baillie Gifford & Co -- have
said they back Woodford's bid to be reinstated.
"It continues to be clear that management and the board must
change as soon as possible," said Josh Shores, a London-based
principal at U.S. fund manager Southeastern Asset Management,
Olympus's largest foreign investor.
"Olympus needs a credible board with independent directors
providing oversight of the clean-up and company revamp," he told
Reuters. "The involvement of Mr. Woodford will be a strong sign
that the fix will be done in a thorough and transparent manner
positioning Olympus for a strong future."
But Japanese institutional investors appear worried about
whether he can win over the company's employees as well as his
plans to turn the firm around.
Woodford said he was willing to meet Takayama at any time,
but added incumbent directors were too discredited to be in a
position to choose their successors.
"The only purge Olympus needs is in the boardroom," Woodford
said on a live Internet broadcast late on Wednesday as part of
his effort to woo employees, investors and the public.
"The culture is a good one. We make wonderful products. We
have strong people and the problem is isolated at the board. So
change the board and the company can get behind the new
management and start moving forward."
He told Reuters he would probably be the sole foreigner on
his list of board candidates. If he lost a proxy fight for
control of the company, he would likely abandon his efforts to
change the company, he said.
A rare foreign CEO in Japan when he led Olympus, Woodford
has sought to soothe concerns about his plans for the firm.
"I want no part in selling Olympus or breaking it
up," he said, adding he would not close the struggling camera
"People say the 'gaijin' president would shut it," Woodford
said, using the Japanese word for foreigner. "I wouldn't."