So the story continues to unfold and it doens’t sound too good. In my earlier post, I said that on the face of it there might be 459 billion yen or 1,700/yen per share in value at Olympus just by valuing the medical equipment business at 8.0x EBITDA, adding up the cash and securities and deducting long term debt (see here).
I also did say, though, that financial statements are in question with such a fraud of massive scale. Who knows what is going on there? Since the scandal broke, they said that financial statements will have to be restated going back 20 years.
Still, if the loss was a billion dollars or so and if the phony payments and recent writedowns were related to the earlier losses and that was all there is, there was a chance that Olympus may have plenty of equity value for shareholders.
However, today’s New York Times article about an investigator’s memo raises questions about that.
From the article today (read here: NYT Olympus article, November 18, 2011)
“Olympus paid a total of 481 billion yen, or $6.25 billion, through questionable acquisition payments, investments and advisory fees from 2000 to 2009, according to the memo, but only 105 billion yen has been written down or otherwise accounted for in its financial statements. That leaves 376 billion yen, or $4.9 billion, unaccounted for, according to the memo”
Well, if this is true, there goes the 459 billion in equity value that might have existed at Olympus. Also, this memo only mentions the period 2000 to 2009. If the losses occured in the early 1990s, there may be more from 1990 – 1999.
Anyway, I guess this is a speculation that certain types of investors like, but with such a potential black hole, the wise thing to do might be to stay away.
Again, the scary thing is that I find it hard to believe that Olympus is a single, rogue company. I think this is a systemic problem with many large corporations in Japan. Of course it’s silly to think this is going on at all Japanese corporations, but I find it hard to believe that this is the only company that has done this.