Michael Woodford, the ousted boss of Japan's Olympus Corp, has won the battle to force his former employer to admit to more than a decade of accounting fraud. His bid to return as chief executive officer, however, appears doomed.
Woodford has said major lenders to the maker of cameras and medical equipment will decide its fate - and those banks are already lined up behind Olympus managers, seemingly intent on slamming the boardroom door shut on him for good.
Olympus' lenders, led by Sumitomo Mitsui Financial Group (SMFG), are likely to deliver the final blow to the Briton's comeback campaign by backing a plan to bring in a new domestic investor to pump more capital into the firm, say bankers familiar with their thinking.
They say the new investor, possibly a Japanese rival such as Fujifilm, would bolster Olympus with a dose of fresh equity, but in the process also weaken the influence of foreign shareholders who are the main backers of a Woodford comeback.
The Nikkei business daily reported on Tuesday that Olympus may issue about $1.28 billion (100 billion yen) in new preferred shares, with Sony and Fujifilm seen as possible buyers. Panasonic Corp may also buy some of the stock, the report said.
Olympus said it had made no decisions about capital raising, while Sony and Fujifilm declined to comment.
As evidence that the deck is stacked against Woodford, the bankers point to his criticism of cozy ties between Olympus and its main Japanese investors, and to signs SMFG in particular is backing the current board, the same team that sacked him.
Woodford does not have much chance of winning support from Japanese shareholders, said a Japanese banker, who declined to be identified because of the issue's sensitivity.
Japan's major banks such as SMFG and Mitsubishi UFJ Financial Group are often cornerstone investors in Japanese blue chips, with major holdings of both equity and debt, and they traditionally call the shots at board level, making or breaking chief executives.
Olympus is no different, as Woodford may discover.
In a sign lenders are in the driving seat, Olympus has appointed an industrialist with connections to SMFG as the head of an outside panel to advise the firm on a management shake-up. The panel chief, Shiro Hiruta, was formerly head of chemicals firm Asahi Kasei, which has close ties with SMFG.
In the old days, banks would send someone to be CFO and CEO. You can see having someone from a company close to SMFG means Olympus' solution is going to be bank-led, said the Japanese banker.
SMFG is the biggest lender to Olympus with 227.5 billion yen ($2.92 billion) in outstanding loans and bonds, according to company data and sources. The bank also holds a 3.4 percent equity stake in Olympus, whose balance sheet has been left badly weakened by a $1.7 billion fraud to hide investment losses.
Olympus' other main lender MUFG, which also is a shareholder, has said it will continue to support the company.
Woodford himself is showing frustration that his campaign has failed to draw any public support from Japanese banks, and has made barbed comments about their cozy ties with Olympus.
Speaking to reporters on a visit last week to Japan, he sounded abandoned: Not one Japanese shareholder stood up and said publicly, 'Mr Woodford is right, thank you Mr Woodford', anything, a total, utter silence.
On Tuesday, SMFG called Woodford's representatives in Tokyo to decline his request to meet the head of its banking unit, Takeshi Kunibe. The bank said it was developing its recovery plans under the management reform committee headed by Hiruta, and didn't want to interfere with that process, Woodford told Reuters.
Far from surrendering the boardroom to Woodford and his own team of nominees, the current board has even stepped back somewhat from its earlier commitment to resign en masse - a retreat that clearly enraged the whistleblower.
Lenders may even be willing to retain some of those board members, a source from a Japanese bank told Reuters.
I don't know if it will produce good results for the entire board to resign, the source said, declining to be identified because he wasn't authorized to talk to the media.
U.S. fund manager Southeastern Asset Management, a supporter of Woodford and a big foreign shareholder with about 5 percent of Olympus, fears it will have little influence on the end-game.
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 principal at Southeastern, told Reuters.
The fund on Monday urged a halt to any fund-raising plan until a new board was in place.
Olympus' net assets are dangerously thin after it corrected its accounts last week, unwinding the effects of a 13-year fraud to reveal its true financial state.
Shareholders' equity was just 42.9 billion yen ($550 million) at end-September, or just 4.5 percent of total assets - less than a quarter of what is seen as a healthy cut-off. A healthy 20 percent proportion of equity would imply that it needs to raise about 150 billion yen in fresh equity.
How much it can raise may be limited by Tokyo Stock Exchange listing rules that require a company to seek either shareholder approval or an independent entity to bless an offering equal to more than 25 percent of outstanding shares. At the current stock price that would restrict it to 72 billion yen.
Woodford, who was a rare foreign CEO in Japan, has outlined his own ideas for Olympus to raise capital, through either private equity or a rights issue - but both are unlikely to win support from Japanese investors, Tokyo investment bankers say.
Rights issues are an unwieldy and rare form of raising capital in Japan, and domestic shareholders may flinch from selling part of Olympus to private equity firms which are often viewed in Japan as foreign asset strippers.
It could be sold to someone in the future and the potential buyer could be a foreign firm. That would not be acceptable from the Japanese point of view, said a private equity expert, who asked not to be identified.
If reinstated as CEO, Woodford says he would recapitalize Olympus within months. But he may find that his nemesis, Olympus President Shuichi Takayama, will move more quickly still, and line up a new domestic investor before an extraordinary shareholder meeting Takayama plans to hold in March or April.
There's no shortage of rumored new partners for Olympus.
Apart from tech stalwarts Sony, Panasonic, Canon and Fujifilm, medical device maker Terumo Corp, which owns 2.5 percent of Olympus, has been cited by bankers as a possible partner, as has conglomerate Hitachi Ltd.
Fujifilm said last week it was buying U.S.-based medical equipment maker SonoSite Inc for about $753 million to bolster its life sciences business.
In an interview with Reuters on Tuesday, Woodford queried why the companies cited by the Nikkei would want to invest in Olympus.
One has to ask what is (their) motivation? They compete with us. Based on this report they would have no voting rights ... and it's likely they wouldn't want to proceed given the litigation risks, he said by telephone.
It would be very alarming. It should go to the vote at an EGM.
A tie-up with another Japanese company would be more palatable to local investors, but would do little to meet foreign investor demands for improved corporate governance.
With enough support from foreign shareholders, Woodford could force an earlier vote, but has not so far sought to convene an extraordinary meeting, according to Olympus, suggesting to some analysts he lacks the numbers.
Rather than calling it early and losing, it's probably better for (Woodford's supporters) to wait until the planned gathering so they can get their board candidates ready, said Kengo Nishiyama, senior strategist at Nomura Holdings.
Robert McCormick, chief policy officer at proxy advisory firm Glass Lewis & Co, noted there have been few proxy contests in Japan, reflecting a docile domestic shareholder base that rarely challenges management.
And Woodford's chances?
It will come down to how much of the shareholder base is based in Japan and how much is outside Japan, said McCormick.
Japanese shareholders based in Japan tend to be fairly conservative, but if you get a lot of U.S., UK, even continental (European) shareholders, you're more likely to get a positive result.
Woodford himself remains determined and defiant.
We are very close to being in a position to release our names, an alternative slate of directors, he told Reuters, adding this list included credible Japanese figures.
We will have an EGM ... within the next three months, and I will be campaigning hard for a slate I believe will win. I'm more positive, not less so, because of what it (the reported share issue plan) illustrates.
($1 = 77.9650 Japanese yen)
(Additional reporting by Junko Fujita and Taiga Uranaka in TOKYO and Alexander Smith in LONDON; Editing by Mark Bendeich and Ian Geoghegan)