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US fund ValueAct forces Olympus to appoint 3 foreign directors

President to stand down as investors make breakthrough in two-year campaign

Olympus CEO Hiroyuki Sasa's resignation was expected some time this year.   © Reuters

TOKYO (Financial Times) -- US activist hedge fund ValueAct has scored a victory with its first investment in Asia, forcing Olympus to accept three foreign board directors for the first time since the 2011 ousting of Michael Woodford and the corporate crisis that followed.

ValueAct's campaign, which was waged behind the scenes for almost two years, coincided with an announcement on Tuesday that Hiroyuki Sasa, the long-serving president who was installed in the wake of the $1.7bn accounting scandal, will step down in April.

The fund's success could mark a turning point for activism in Japan, revealing the vulnerabilities of certain Japanese boards in an era of heightened focus on governance and stewardship.

In a move that dramatically shifted the balance of discussions between Olympus and the San Francisco-based fund, in early December ValueAct threatened to call an emergency general meeting of shareholders, at which it would demand the replacement of the Japanese group's entire board, according to a person with knowledge of the discussions.

As part of the deal reached with Olympus, the cameras-to-medical-devices manufacturer will nominate three non-Japanese board directors proposed by ValueAct including one from Olympus itself for its annual meeting of shareholders in June, the person said.

Shareholder activism has been on the rise in Japan over the past few years with Daniel Loeb's Third Point, Elliott Management and Hong Kong-based Oasis Management targeting blue-chip companies including Sony, Nintendo, Hitachi and Panasonic.

But in contrast to other recent activist campaigns, ValueAct's efforts were not focused on immediate returns of a share buyback or a dividend increase, but on longer-term strategies to improve the company's profitability and global growth potential.

Mr Sasa's resignation was expected among investors at some point this year and ValueAct, which manages around $14.5bn, did not vote against his reappointment at last year's annual shareholders meeting.

In a statement on Friday, Olympus said it would nominate Rob Hale, a partner at ValueAct, as its new board director. Mr Sasa will be replaced by Yasuo Takeuchi, the company's chief financial officer, in April.

In addition to globalising its management structure, the company also announced that it would launch a new cost-cutting programme and introduce audit, nomination and compensation committees to improve its governance.

"We have been impressed with ValueAct's expertise and constructive approach, and believe that having Rob Hale on the board will bring useful global perspective and experience to our ongoing work to transform Olympus and build value for all shareholders," Mr Takeuchi said in the statement.

ValueAct first took a stake in Olympus in late 2017 and disclosed its investment in May of last year when its holding reached 5 per cent of the company's shares.

"We share their vision and believe the transformation initiatives to globalise governance and management will position Olympus to achieve its full potential," Mr Hale said.

Since Mr Sasa took over in 2012 after the accounting crisis, the company revamped its governance structure, bringing in six external directors to its 11-member board.

But questions about its corporate culture have resurfaced after the company was sued in January by its own in-house lawyer, who claimed the management retaliated against him when he defended a colleague who tried to expose bribery allegations in Shenzhen. The company denies the claim.

The US Department of Justice has also continued to investigate Olympus over kickbacks paid to doctors and hospitals, and superbug outbreaks involving its duodenoscopes in the US. The company has declined to comment on the DoJ investigation.

Shares in Olympus fell nearly 30 per cent over the past year as the company pushed back its fiscal 2020 revenue target by up to three years, citing costs to meet tougher international regulations on medical equipment.

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