Here’s a new supplier risk category as Olympus fall off their mountain

We’ve talked extensively about supplier and supply chain risk management here, but there’s always something new coming up that makes you think “wow, I hadn’t thought of that one”.

And the revelations – still emerging – about Olympus  fall into that category.  It is too early to say whether there will be implications that should worry buyers of their products, but there could conceivably be some pretty major consequences.

The British MD Michael Woodford has turned whistleblower, as he asks questions about three previous acquisitions made by the firm. They bought a maker of microwavable cookware, a beauty products firm and a recycling business, none of which seemed to make much sense in the overall Olympus portfolio,  and have cost the firm accounting writedowns of  54 billion yen (£460 million).

Perhaps even more seriously, he has drawn attention to the fees apparently paid to “advisers” during the takeover of British medical equipment company Gyrus in 2007.  The acquisition value in sterling was around £935 million – and these “advisory fees”, paid to firms based in the Cayman Islands, was £438 million! Here’s the Times:

The Times has learnt that the disputed sums were paid in March 2010 by Olympus .. to the Cayman-registered AXAM Investments and AXES America. .. An independent report by PwC found that both AXAM and AXES no longer exist.

According to Olympus themselves, they received in return “advice on potential acquisitions, the formation of a management team to conduct a deal and help with negotiation”.

However a senior Gyrus exec has said he never saw anything of these mysterious bid advisers.

So I think I need to send their Board a copy of my co-authored book, “Buying Professional Services” to the Olympus Board.  My goodness, they don’t half need it - £438 million in fees!  And you have to ask how on earth shareholders didn’t pick up on this sooner – the whole thing smells fishier than Seahouses harbour, and you suspect there’s a lot more to come out here.

While we tend to think of Olympus as camera people, they’re actually a huge supplier to the health sector, public and private, around the world, with a leading position in endoscopy equipment for instance.  So I imagine a few procurement managers in that sector need to be at least keeping an eye on developments here. I can’t see that there are serious threats to customers, but this level of uncertainty is rarely good for customer service or staff morale.

And perhaps I need to put up my consulting rates a bit...

Late news: apparently the FBI are now taking an interest...

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  1. Woodbine:

    What Michael Woodford may well have realised was that under the new UK Bribery act he and any other Olympus employees with significant links to the UK could be charged and imprisoned for corrupt transactions. Whilst the act which came into force in July and the act is not applied retrospectively, I’m sure he had very little confidence that this wasn’t going to happen again and opted to do the right thing.

    It will be interesting to see if the UK authorities take an interest in this, because if the transaction was fraudulent (not confirmed) and any of the counter-parties had an interest in the UK, they could find themselves being prosecuted here.

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