$1 Billion Investment in Olympus Not Enough to Bring Stock in Focus

A private equity firm has pledged $1 billion to invest in Olympus (TYO: 7733), after the Japanese cameramaker has been plagued with scandals and uncertainty.

TPG Capital, which manages $48 billion in capital, has not commented on the deal, being reported by Reuters, although Chief Executive of Commons Asset Management Tetsuro Li noted in an interview that the likelihood of a private firm's investment in the company was "50-50."

Li also pointed out the need to restructure Olympic due to its recent M&A activity. "The strategic partner would need to eventually buy out the fund at a higher price. But the fact is Olympus has made a lot of acquisitions to date, much of which will need to be disposed of or restructured. It probably makes more sense to work with a value-up fund to get that done," Li said.

The investment of a private equity firm means that forecasts of a takeover from an electronics manufacturer were wrong. Olympus's lucrative medical equipment business, which has remained its lifeline even through the recent accounting scandal, remains an attractive buy, but no electronics maker stepped forward with an offer, and TPG has not yet said whether it was working with any electronics firm. Canon (NYSE: CAJ) has already said it was not interested in Olympus.

Olympus has plummeted since the scandal first came to light. Shares have fallen by over half of their value since mid-October, after staying roughly flat since recovering from the subprime mortgage crisis.

It remains unclear how the deal will help revitalize Olympus or its stock, since the company may need to restructure its complicated operations after several acquisitions in recent years. It is also unclear what role TPG will have in the company's operations, and which parts of the firm will be taken over by external management.

Much of the drop in Olympus's stock is a reaction to the scandal amidst concerns that the firm might dissolve or massively restructure combined with concerns that foreign investment in the firm would face Japanese opposition. The Japanese government has the right to halt any foreign investment of 10% or more in a listed firm if it deemed the investment a threat to national security. Olympus's optical technology and medical equipment might fall under that rubric, prompting caution from potential shareholders and external equity firms alike.

Likewise, a takeover of the firm is difficult while it is still under criminal and civil investigations in Japan, the United States, and Britain. The company has also not brought in new management, and it remains unclear who will lead the company through the investigations.