Olympus Corp is preparing to issue about $1.28 billion (100 billion yen) in new shares to bolster its depleted finances, with Japanese high-tech stalwarts Sony and Fujifilm seen as possible buyers, the Nikkei business daily reported.
The report comes after a warning from one of the camera and endoscope maker's leading shareholders that the scandal-tainted board may try to retain control by issuing new shares to dilute the power of existing shareholders.
Olympus shares surged by their daily limit on Tuesday, after falling for four straight sessions on worries about how capital-raising may dilute existing shareholdings, with investors seeming to shift their focus to the firm's finances.
Some people are obviously seeing that this will add to its net assets and contribute to the financial health of the company and increase the value of the company, said Masayoshi Okamoto, head of dealing at Jujiya Securities.
Olympus last week announced restated accounts for the past five years as it struggles to sort out a $1.7 billion accounting scandal dating back to the 1990s, whittling its net assets down to just 45.9 billion yen ($588.9 million).
It also reported a 32.33 billion yen net loss for April-September, although its diagnostic endoscope business, which holds a dominant 70 percent share of the global market, remains a strong cash earner.
The Nikkei said Olympus was believed to be considering issuing preferred shares that would not carry voting rights, although they would eventually be convertible into common stock.
Panasonic Corp may also acquire some of the stock, the Nikkei report said, with details of the new share issuance due to be finalized by next month.
Olympus said it had made no decisions about capital raising and would consider all options as it proceeds with managerial reforms. Sony and Fujifilm declined to comment.
Tennessee-based Southeastern Asset Management, which holds 5 percent of Olympus stock, said on Monday it feared that moves to bring in a new investor would effectively sink a campaign to reinstate former CEO Michael Woodford, who blew the whistle on Olympus' accounting scandal after he was fired two months ago.
Woodford told Reuters on Tuesday he was close to releasing the names of an alternative team of directors for the company, and criticized possible moves to bring in outside shareholders as a sign of desperation and fraught with litigation risk if the partners were also competitors.
It would be very alarming, he said in an interview. One has to ask what is (their) motivation? They compete with us. What are their motives?
Woodford last week blasted Japanese shareholders for failing to back him in his battle with the current Olympus board, which he argues should play no role in choosing his replacement or in setting out the company's future after its complacency in the accounting fraud.
Woodford's bid to win back his old job appears to have little chance of success, with Olympus' major lenders lining up behind management, while foreign investors' demands for improved corporate governance go largely unheeded.
Olympus shares closed up 16.4 percent at 1,065 yen on Tuesday, the highest close since it restated its accounts and released half-year results last Wednesday. It was the stock's biggest one-day percentage gain since November 24.
I guess some people may be buying the shares back now that they have a rough idea on the size of the possible capital increase, said a fund manager at a Japanese asset management firm, who asked not to be named.
But this is the worst kind of development. It's a capital increase for the lenders and the current management. It would be fine if they did this after a proxy fight, but if the current management does it, nothing will change.
Olympus also said it would cut internal directors' compensation by 30-50 percent, while stepping up cost reductions in areas such as advertising and marketing.
The board has said it aims to hold an extraordinary shareholders' meeting in March or April to install a new management team, but Woodford has called for swifter action.
We will have an EGM ... within the next three months, and I will be campaigning hard for a slate (of directors) I believe will win, he said on Tuesday.
Olympus is under investigation by police, prosecutors and securities regulators who are expected to conduct raids this week on the company's offices, according to domestic media, and it may still have its shares delisted from the stock exchange.
The case has so far focused, however, on actions by former Chairman and President Tsuyoshi Kikukawa and two other former senior executives as the company used questionable acquisition deals and other accounting tricks to hide huge investment losses.
($1 = 77.94 Japanese yen)
(Additional reporting by Alexander Smith in London and Tim Kelly, Mari Saito and Hideyuki Sano in Tokyo; Writing by Edmund Klamann; Editing by Alex Richardson, Ian Geoghegan and Muralikumar Anantharaman)