Analysis: Olympus medical business too big to fail

Fri Nov 11, 2011 8:29am EST
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By Isabel Reynolds

TOKYO (Reuters) - Japan's Olympus Corp risks collapsing under a massive accounting scandal, but the company's big and profitable medical business is likely to emerge from any wreckage unharmed.

That is the view of both Olympus's investors and customers as they watch, horrified at events unfolding at the once-proud company, which has admitted to hiding losses for decades and using dubious M&A payments to help cover them up.

Olympus, which began life as a microscope-maker, controls 70 percent of the global market for gastro-intestinal endoscopes, a staple of modern medicine used the world over to peer inside patients to help detect cancer and other illnesses.

That business, virtually the medical equivalent of a bank deemed "too big to fail," is expected to be carried away by one of Olympus's rivals, or a private equity bid, if it becomes clear the company can no longer effectively run it.

"There are many people who want to buy its business," said a fund manager at a firm whose clients have stakes in Olympus's collapsed stock.

"No one loves the company, but everyone loves its business," he said, noting potential buyers would be in no hurry to move in, with police, regulators and company-appointed investigators still poring over Olympus's books and questioning its officials.

For prospective bidders, time is on their side. By waiting to see if the accounting scandal forces Olympus into a funding crisis, they might have the opportunity later to pick the assets up more cheaply, fund managers said.

Japanese rivals Fujifilm and Hoya, the second- and third-largest players in the endoscope business, are obvious bidders, though they would face competition hurdles.   Continued...