Although Imaging Resource doesn't typically report on financial and stock transactions, we believe readers may find the information interesting in this case, given the potential implications for the consumer camera market. The story first came to light several months ago, when Japanese financial magazine Facta reported on Olympus' purchase of UK-based Gyrus Group plc, as well as three smaller Japanese firms, Altis, Humalabo and New Chief. Olympus acquired Gyrus in February 2008, having paid somewhere in the region of US$2 billion for the medical equipment manufacturer. Facta's report suggested that the company paid substantantially higher fees to its advisors than is typical in such deals, and while the company disputes any wrongdoing, subsequent statements suggest that it paid some US$67 million plus a further US$177 million in preferred shares to New York-based Axes America LLC.

Just a month later, Axes is said to have shuttered its US office, and transferred the shares to Cayman Islands-based Axam Investments Ltd, which held onto the shares for a further two years before selling them back to Olympus for around US$620 million, effectively increasing Olympus' cost to some US$687 million, more than a third of the actual purchase price. By way of comparison, the financial media cites unnamed sources as suggesting that fees of 1-5% are more typical. As for the Japanese companies acquired in April 2008, the cost of US$800 million was apparently written down to a value of only a little over US$200 million within the same fiscal period.

On seeing Facta's article, newly-appointed president and chief operating officer Michael C. Woodford is said to have raised the issue in an August meeting with Olympus company chairman and CEO Tsuyoshi Kikukawa and executive vice president Hisashi Mori. Unsatisfied with the response he received, Woodford apparently contracted with accounting firm PriceWaterhouseCoopers to have the circumstances of the Gyrus purchase investigated.

Woodford has been with Olympus since its 1986 acquisition of Keymed, another British medical company headquartered in Southend, Essex. A graduate of Millbank Business School, he became Keymed's Managing Director shortly before his 31st birthday, and over the next 15 years he was appointed to the board of directors first at Olympus Keymed, and then Olympus Medical Systems Corp, before being appointed executive managing director of Olympus Medical Systems Europa GmbH. Woodford also received the Member of the Order of the British Empire from the Queen for contributions to traffic safety, and received Olympus' Presidents Award from then-president Kikukawa in recognition of Keymed's performance, after the company twice received the Queen’s Award for Enterprise in a three year period.

At Olympus Medical Systems, he was credited with raising profits through restructuring and cost-cutting, and by mid-2008 he had been appointed executive managing director of Olympus Europa Holding GmbH, director and executive chairman of KeyMed, and an executive officer of Olympus Corp. In early February 2011, Olympus announced that Woodford would shortly take over from Kikukawa as president and chief operating officer of Olympus Corp., with his predecessor retaining the chairman and CEO positions. On October 1st--apparently well after the reported meeting to discuss the Gyrus purchase--Woodford was appointed CEO of Olympus Corp., with Kikukawa again retaining the role of chairman.

It was to be a short-lived appointment. The report from PriceWaterhouseCoopers was returned on October 11th, and apparently confirmed the payments claimed by Facta, although PriceWaterhouseCoopers is reported to have been unable to identify Axam's owners, nor to contact its US representative. That company, too, had apparently ceased to exist within a few months of selling its shares back to Olympus, with its entry on the Cayman Islands company registry dropped in June 2010 for nonpayment of fees. Just three days later, and only two weeks after taking the helm, Woodford was abruptly dismissed from the roles of president and CEO, remaining only as a director without executing right. In a media interview, he stated that he had left Japan the same day, citing concern for his safety after an additional report from Facta magazine claimed to have linked unspecified "anti-social elements" to the Gyrus acquisition. On Woodford's departure, Kikukawa resumed both the president and CEO roles, in addition to his positions as chairman and representative director.

For their part, Olympus issued a statement suggesting that Woodford had "largely diverted" from the company's management direction and methods, and that it felt he was "now causing problems for decision making". An internal memo leaked to the media went further, making it clear that the split was acrimonious, and suggesting that Kikukawa believed Woodford was trying to oust the board, intending to install himself as the company's head. However, the problems were only just beginning. On October 17th, Woodford is reported to have provided documents including the PriceWaterhouseCoopers document to the United Kingdom's Serious Fraud Office, which was said to be considering an investigation, since a significant portion of the fees paid to Axes America are believed to have passed through Olympus UK. The following Sunday, reports surfaced that the FBI was also investigating the payments, and Olympus is also facing questions both from investors, and from the Japanese government.

Woodford's allegations are serious indeed, and while we certainly don't yet know the full story, there are clearly questions to be answered. Acknowledging concerns of shareholders and regulators alike, Kikukawa today stepped down from the roles of chairman, president, and CEO of Olympus Corp., and like Woodford before him, although he remains a company director, he is no longer empowered to represent Olympus Corp. in transactions. In his place, senior executive managing director Shuichi Takayama has now assumed the positions of president and representative director. Takayama is a 41-year Olympus veteran, having joined the company in April 1970, and also serves as president and representative director of Olympus Imaging Corp. In a press conference announcing his appointment, Takayama apologized to shareholders, and declined to discuss the acquisitions while a third-party investigation is pending, but denied Facta's claim of links to organized crime.

Not surprisingly, the entire affair has had a significant effect on the company's share price, which plunged from a high of ¥2,526 right before Woodford was dismissed to as low as ¥1,012 less than two weeks later. (It recovered slightly the following day, but continues to hover in areas not seen since the late 1990s.) That drop in stock price comes despite the value of Olympus' medical equipment division, which holds an extremely dominant position in the endoscope market, a point not lost on the Wall Street Journal, and indeed likely to have rivals taking note. Rumors are swirling of a potential takeover bid, with the WSJ mentioning Hoya, Fujifilm Holdings, and Johnson & Johnson, and the San Francisco Chronicle also suggesting Canon Inc. as a potential bidder.

If a takeover happens, the big question is this: what happens to the company's lesser-performing divisions? While the story to date has revolved around the company's medical division, the eventual outcome may prove equally critical to the future of the company's imaging products. Olympus Imaging Corp. and its predecessors have a long history in the photography business, with many important milestones among their products, including Japan's first 35mm camera with a lens shutter system (1948), the first medical camera (1950), the first half-frame SLR (1959), the first image-stabilized digital camera and the first digital printing camera in the US market (both introduced in 2000), and the first shock-resistant, waterproof camera (2006). The company is a major driver behind the Micro Four Thirds standard, and its PEN-series compact system cameras--which harken back to the iconic film cameras of the same name--are among the most popular system cameras worldwide, especially in the Japanese market. Olympus has arguably done more to open up the mirrorless camera market than almost any other manufacturer.

We're sure many of our readers join us in hoping for a favorable outcome that allows Olympus to continue its strong position as a major camera manufacturer, particularly in the system camera space.