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Last updated: October 18, 2011 4:38 pm
Tsuyoshi Kikukawa, chairman of Olympus, has broken his silence over allegations by the Japanese group’s ousted chief executive that it paid huge fees to a mysterious financial adviser in a 2008 acquisition.
In an interview with Japan’s Nikkei newspaper on Tuesday, Mr Kikukawa acknowledged paying the adviser about Y30bn, equal to about 15 per cent of the Y215bn it paid for the acquisition target, the UK medical equipment company Gyrus.
That is about half the amount alleged by Michael Woodford, the former CEO who was dismissed by Olympus on Friday over what the company said were problems with his management style. It is nonetheless much higher than typical advisory fees, which are normally set at about 1 per cent of the acquisition price.
An investment banker in Tokyo said: “That is inconceivable. Nobody would pay Y30bn [for M&A advice].”
Mr Kikukawa did not explain how Olympus arrived at such a large payment, but said accountants and lawyers had signed off on the amount.
The dispute between Olympus and Mr Woodford, a Briton who had taken over as president of the camera and endoscope manufacturer only in April, has pushed the shares down 45 per cent since Friday. Olympus’s shares closed down 9 per cent on Tuesday, after two days of double-digit declines.
In a conference call with investors and analysts on Monday night, Olympus executives suggested they might sue Mr Woodford for allegedly revealing confidential company information to the media after he was dismissed. Documents shown to the FT, including a review of the deal by PwC, the audit firm, suggest Olympus paid the financial adviser $687m.
They suggest that an initial agreement to pay the adviser $5m plus 1 per cent of the deal’s value was renegotiated several times, with the adviser receiving increasingly generous terms with each amendment. There is no record of Olympus having received any additional benefits in return.
Of equal concern to Mr Woodford was the identity of the adviser, listed in the documents as Axes Americas, a US-based securities firm, and the related Axam Investments, a Cayman Islands-registered fund overseen by Axes that received the payments from Olympus.
“I felt very uncomfortable because the amount of monies paid to parties completely unknown were so huge,” said Mr Woodford in a video interview with the FT on Monday.
Neither Axes nor Axam were mentioned in public announcements related to the Gyrus deal. According to a review of the acquisition by PwC, Axam was struck from the Cayman Islands registry a few months after taking payment from Olympus, while Axes ceased operations and a man listed as its president effectively disappeared.
The FT called a telephone number for the company listed in an online business directory but found it had been disconnected.
In the interview on Tuesday, Mr Kikukawa did not discuss the question of the adviser’s identity, or how Olympus chose the company to broker the Gyrus deal.
Mr Kikukawa also defended three acquisitions in Japan between 2006 and 2008 for which Mr Woodford contends Olympus massively overpaid. According to Mr Woodford, Olympus spent more than Y70bn to buy three little-known companies with no connection to its core businesses and little actual value. He also contends that the companies’ owners were never identified by Olympus during the transactions.
Mr Kikukawa said: “The firms we bought continue to be unprofitable, which is my fault, but the moves were necessary to help foster new businesses.”
Additional reporting by Michiyo Nakamoto
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