* A new investor may sink ex-CEO's campaign for
* Southeastern says Olympus need not rush for capital
* Southeastern says share issue could boost legal
By Nathan Layne and Sinead Cruise
TOKYO/LONDON, Dec 19 A big foreign
investor in Japan's disgraced Olympus Corp voiced its
concern on Monday that the firm would bring in a major new
investor, in a move that could effectively sink former CEO
Michael Woodford's campaign to be reinstated.
Tennessee-based Southeastern Asset Management, which holds 5
percent of the maker of cameras and medical equipment, said it
was worried the current board may issue new shares with the aim
of diluting existing shareholders and retaining power.
Southeastern and Chicago-based Harris Associates, which owns
about 4 percent of Olympus, have been two of the most vocal
critics of directors for dismissing Woodford in October after he
questioned accounting irregularities at the firm.
Olympus has since admitted to a $1.7 billion accounting
fraud to cover up securities losses dating back to the 1990s but
says it was orchestrated by a handful of executives, and the
board members not implicated remain in place.
Southeastern said a move to bring in a friendly shareholder
would be seen as a last-ditch attempt by those directors to hold
on to power and would further damage the image of corporate
"If the incumbent board is allowed to sell off the company's
independence cheaply to protect its own interests, it will deal
a severe blow to the reputation of Japan's capital markets and
corporate governance," Southeastern said in a statement.
Olympus President Shuichi Takayama said at a briefing on
Thursday that he would consider capital and operational tie-ups
with other companies as it maps out a revival plan to be put to
an extraordinary shareholders' meeting in March or April.
Takayama also said that directors that were found not to be
responsible for the accounting fraud may not need to resign, in
an apparent reversal from a previous statement suggesting the
entire board would be replaced.
His statements triggered speculation Olympus may look to
issue shares to another company. Panasonic Corp, Canon
Inc and Sony Corp have been mentioned by
bankers and analysts as among possible suitors, though no
company has publicly declared concrete interest in a deal.
Under Tokyo listing guidelines, Olympus can issue new shares
equivalent to up to 25 percent of those outstanding without
shareholder approval. At the current stock price, an issue of
that size would raise 63 billion yen ($810 million).
Southeastern said Olympus was not in desperate need of
capital given its healthy cash flow from endoscopes and more
than $2 billion in cash -- and warned that a share issue could
leave it vulnerable to more shareholder lawsuits.
It also urged that Woodford be brought back to play some
role in improving the discredited corporate governance at
"We are concerned that they want the capital-raise not to
shore up the balance sheet but to bring in a partner who would
be supportive of their continued control of the board," Josh
Shores, a senior analyst and principal at Southeastern, told
Reuters ahead of the statement.
"You could solve this in the same way we have been pushing
for the whole time, an open and collaborative way. Bring back
Woodford to be involved with the required changes in corporate
governance and the legal liabilities could fall to the lower-end
of the range," Shores said.
Woodford is lobbying shareholders to return to the helm, but
his campaign has caused an apparent split between major foreign
shareholders, who have called for his reinstatement, and major
Japanese investors who have lent him no public support at all.
Takayama said the existing board would present its new
revival plan, including its suggested slate of directors, to a
third-party committee charged with judging its suitability
before it is put to shareholders. He said he did not plan to
consult with Woodford on the plan.
Olympus' next CEO and board face major challenges, starting
with a need to repair its balance sheet, which was revealed last
week to be $1.1 billion weaker than had been previously
disclosed in its fraudulent accounts.
Financial restatements knocked Olympus' shareholder equity
ratio down to just 4.5 percent as of the end of September, or
roughly a quarter of what is considered healthy. It is also
sitting on a relatively high level of debt at 665 billion yen.
Supported by profits from the endoscope business, Olympus
has told its creditors that it could run the debt down to 409
billion yen by March 2015 without any fresh funding, though its
cash pile would dwindle to 19 billion yen.
Olympus shares have more than doubled since hitting a
post-scandal low of 424 yen on Nov. 11, but are still down some
60 percent of their value before Woodford was sacked on Oct. 14
The share price closed Monday down 8.9 percent at 915 yen