Yakuza Crackdown Could Derail Effort to Keep Olympus Listed
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TOKYO - Japanese police eager to show they are tough on organised crime could derail regulators’ efforts to save disgraced Olympus Corp from the devastating blow of delisting, raising the chances its core business will be bought out by a rival.
Japan’s securities watchdog, prosecutors and police, including a unit of the Tokyo police department’s organised crime division, are probing the firm after it admitted this month to hiding investment losses for decades through improper accounting.
Olympus said on Monday that a third-party panel the firm appointed to look into the affair had found no criminal participation in its M&A deals, nor had any funds flowed to “anti-social forces”, a Japanese euphemism for organised crime syndicates or “yakuza” gangsters. But the scandal coincides with stepped-up efforts by police nationwide to break the shadowy ties that have for decades bound the crime syndicates and companies.
“The police want a high-profile bust to show the new law has teeth and that they are serious about implementing it,” said Nicholas Smith, head of equities strategy at CLSA in Tokyo.
“The regulators, on the other hand, want to make sure the company stays in business. “The risk in all this is that a major listed company gets delisted, credit lines are pulled, people lose their jobs and a good, viable business disappears. Understandably, that’s probably one of the last things that they (regulators) really want to happen,” he said.
Analysts have said that Olympus’ big and profitable medical equipment business could eventually be an attractive target for a rival firm or a private equity fund once the dust settles. Internecine rivalry among authorities is also complicating the outlook for Olympus. Tokyo police, experts say, are keen to muscle in on the investigation as part of a rivalry with prosecutors, who normally take the lead in such cases.
“A negotiated, face-saving solution seems unlikely for anyone involved,” said Jesper Koll, head of equities research at JPMorgan in Japan. Olympus shares at one point fell some 80 percent after the scandal broke last month after axed British CEO Michael Woodford urged the company to come clean on murky acquisition deals.
The stock has rallied since Nov. 11, following news that Japan’s securities watchdog might make an example of Olympus executives found responsible for the scam, and recommend charges against them, but urge only slapping the company with a fine.
That outcome could make it easier for the 92-year-old firm to remain listed on the Tokyo Stock Exchange, easing the pain for shareholders and lightening the gloom for Olympus, whose leading share and technological edge in the global endoscope market are a matter of pride for the country. Makin a splash
Major foreign shareholders have already urged the exchange to keep Olympus listed. “We believe that shareholders have already suffered enough due to the actions of Olympus executives and that a delisting would unfairly punish them and other stakeholders further,” the Asian Corporate Governance Association, whose members include institutional investors that collectively manage assets of more than $10 trillion, said in a letter to the TSE last week.
Any proof that crime syndicate members or persons close to them were involved in the accounting scandal, however, would make it difficult for the TSE to maintain Olympus on the bourse. “If there are clear links from Olympus to organised crime in Japan, then that would weaken the case for the company to remain listed and would greatly increase the pressure on the TSE to delist,” Jamie Allen, secretary general of the corporate governance association, told Reuters in an email.
“However, as far as we know, this is still speculation.” Delisting would effectively cut Olympus off from equity capital markets, constraining its funding and making it harder for its lenders to keep supporting the firm in its battle to avoid having to sell off its profitable core businesses.
It could also damage Japan’s reputation among global investors. If Olympus is delisted, prospective bidders may swoop.
Its main rivals in the endoscope business, fellow Japanese firms Fujifilm and Hoya, are watching events closely, and private equity firms could also be interested. Camera-maker Canon Inc, which is keen to expand its healthcare presence, may also want to cherry-pick some of Olympus’ assets, according to industry analysts.
Japanese authorities have been lamenting moves by organised crime into financial markets and corporate boardrooms for more than two decades, as yakuza branched out into legitimate ventures with which reputable firms then do business. An ordinance that went into effect on Oct. 1 in Tokyo — the last in a series of local ordinances nation-wide — cracks down not only on organised crime syndicates but also firms that knowingly do business with gangsters or those close to them.
“They (police) are looking to make a bit of a splash. The whole organized crime thing seems to be on the agenda and they won’t want to be seen ignoring it,” said Peter Godwin, managing partner at law firm Herbert Smith in Tokyo.
Japan’s securities watchdog, prosecutors and police, including a unit of the Tokyo police department’s organised crime division, are probing the firm after it admitted this month to hiding investment losses for decades through improper accounting.
Olympus said on Monday that a third-party panel the firm appointed to look into the affair had found no criminal participation in its M&A deals, nor had any funds flowed to “anti-social forces”, a Japanese euphemism for organised crime syndicates or “yakuza” gangsters. But the scandal coincides with stepped-up efforts by police nationwide to break the shadowy ties that have for decades bound the crime syndicates and companies.
“The police want a high-profile bust to show the new law has teeth and that they are serious about implementing it,” said Nicholas Smith, head of equities strategy at CLSA in Tokyo.
“The regulators, on the other hand, want to make sure the company stays in business. “The risk in all this is that a major listed company gets delisted, credit lines are pulled, people lose their jobs and a good, viable business disappears. Understandably, that’s probably one of the last things that they (regulators) really want to happen,” he said.
Analysts have said that Olympus’ big and profitable medical equipment business could eventually be an attractive target for a rival firm or a private equity fund once the dust settles. Internecine rivalry among authorities is also complicating the outlook for Olympus. Tokyo police, experts say, are keen to muscle in on the investigation as part of a rivalry with prosecutors, who normally take the lead in such cases.
“A negotiated, face-saving solution seems unlikely for anyone involved,” said Jesper Koll, head of equities research at JPMorgan in Japan. Olympus shares at one point fell some 80 percent after the scandal broke last month after axed British CEO Michael Woodford urged the company to come clean on murky acquisition deals.
The stock has rallied since Nov. 11, following news that Japan’s securities watchdog might make an example of Olympus executives found responsible for the scam, and recommend charges against them, but urge only slapping the company with a fine.
That outcome could make it easier for the 92-year-old firm to remain listed on the Tokyo Stock Exchange, easing the pain for shareholders and lightening the gloom for Olympus, whose leading share and technological edge in the global endoscope market are a matter of pride for the country. Makin a splash
Major foreign shareholders have already urged the exchange to keep Olympus listed. “We believe that shareholders have already suffered enough due to the actions of Olympus executives and that a delisting would unfairly punish them and other stakeholders further,” the Asian Corporate Governance Association, whose members include institutional investors that collectively manage assets of more than $10 trillion, said in a letter to the TSE last week.
Any proof that crime syndicate members or persons close to them were involved in the accounting scandal, however, would make it difficult for the TSE to maintain Olympus on the bourse. “If there are clear links from Olympus to organised crime in Japan, then that would weaken the case for the company to remain listed and would greatly increase the pressure on the TSE to delist,” Jamie Allen, secretary general of the corporate governance association, told Reuters in an email.
“However, as far as we know, this is still speculation.” Delisting would effectively cut Olympus off from equity capital markets, constraining its funding and making it harder for its lenders to keep supporting the firm in its battle to avoid having to sell off its profitable core businesses.
It could also damage Japan’s reputation among global investors. If Olympus is delisted, prospective bidders may swoop.
Its main rivals in the endoscope business, fellow Japanese firms Fujifilm and Hoya, are watching events closely, and private equity firms could also be interested. Camera-maker Canon Inc, which is keen to expand its healthcare presence, may also want to cherry-pick some of Olympus’ assets, according to industry analysts.
Japanese authorities have been lamenting moves by organised crime into financial markets and corporate boardrooms for more than two decades, as yakuza branched out into legitimate ventures with which reputable firms then do business. An ordinance that went into effect on Oct. 1 in Tokyo — the last in a series of local ordinances nation-wide — cracks down not only on organised crime syndicates but also firms that knowingly do business with gangsters or those close to them.
“They (police) are looking to make a bit of a splash. The whole organized crime thing seems to be on the agenda and they won’t want to be seen ignoring it,” said Peter Godwin, managing partner at law firm Herbert Smith in Tokyo.
