Earlier today Olympus Corporation announced that it had signed a memorandum of understanding with Japan Industrial Partners, Inc. (JIP) to carve-out Olympus’s Imaging Business.
NOTE to readers: This is an updated article.
Readers who would like to read the official Olympus Corporation press release can use the link provided.
Peta Pixel has reported that until the transaction is finalized (planned for the end of 2020) it is business as usual for Olympus, and that product launches planned for 2020 will continue.
I would encourage readers to have a good look at the information provided by the links as it will help you come to your own conclusion about the future of the Olympus camera products.
Before we all get ahead of ourselves, it is good to remember that a deal has not yet been finalized. Various negotiations and assessments will be happening over the next number of months. These are planned to conclude by September 30, 2020 at which time a definitive agreement may be signed. Should that occur, the date for the transaction to be finalized is December 31, 2020.
While this news may come as a shock to many Olympus owners, it is prudent to put it in context. While Olympus was making some headway with its camera business in terms of bringing new technology to market, and trying to bring its costs in line with market volume realities, it simply was not enough to weather the COVID-19 storm.
It is anticipated that many industries are facing 3-5 year recovery cycles due to the business impacts of COVID-19. Since cameras are discretionary ‘luxury goods’ the recovery cycle would have pushed financial losses for the Olympus imaging division for some additional years into the future. This appears to be something that the board of directors could not accept.
So, let’s look at the options that Olympus faced with its imaging division and the added pressures brought to bear by COVID-19.
Option 1 was simply to shut the imaging division down. This would have ended the Olympus camera product line immediately. Terminations of employees would have occurred. All of their expertise and knowledge would have left. If Olympus would have closed the imaging business it would have needed to sell whatever related assets in terms of manufacturing facilities and patents that it could to recoup some amount of capital. Given the precarious state of the worldwide camera business for all companies engaged in it, the potential marketability of those assets is questionable.
Option 2 would have been for Olympus to sell its imaging division to a direct competitor, either as a complete entity, or sell some of the assets that a competitor may have wanted, e.g. IBIS patents. Given the state of the camera market it is doubtful that any direct competitor would have had the cash flow to buy part or all of the Olympus imaging business. And, even if they did, the Olympus product line probably would have disappeared since the competitor likely would have cherry picked some assets and moved on.
Option 3 is what Olympus is pursuing… carving out its Imaging Division and selling it to an outside company that specifically deals with troubled business units.
There are risks associated with Option 3 for owners of Olympus cameras. I do not know much about Japan Industrial Partners (JIP) other than it is a private equity company that has been in existance for about 20 years.
Many private equity companies buy depressed businesses and immediately dismantle them and make their profits by piecing out the assets. If this is the case with JIP then the future of Olympus cameras is still in high jeopardy.
The other approach used by many private equity companies is to ‘fix’ an underperforming division, then flip it to another buyer once it is in a breakeven or profitable position. In some cases they keep the business turnarounds, like the Canadian company Onex often does. If this is the road that JIP intends to take with the Olympus imaging division, then the future of the camera line is much more positive.
If you read the official press release from Olympus, it does indicate that the intent is for the imaging division to continue producing and developing products into the future. This is outlined in Section 2 of the memoradum of understanding. The last two paragraphs of Section 1 also indicate the intention for the imaging division to continue its operation. Whether this actually comes to pass remains to be seen.
It is also unclear at this time exactly what the ownership of the new company to which the Olympus imaging division may be transferred will be. The following is a paragraph from the official Olympus press release (second last paragraph in Section 1). The bold face type is my addition.
“Under such circumstances, Olympus considers that, by carving-out the Imaging business and by operating the business with JIP, the Imaging business’s corporate structure may become more compact,
efficient and agile and it is the most appropriate way to realize its self-sustainable and continuous growth and to bring values to the users of our products as well as our employees working in the Imaging business. Olympus therefore has decided to sign the memorandum of understanding for the Transaction. ”
Again, we do not know the details of the transaction and how the ownership of the new company will be structured. It may end up being 100% owned by JIP.
Another possibility is that the carve-out may end up being structured as a joint venture of some sort with JIP and Olympus both owning shares. But, with the carve-out being a separate entity from Olympus Corporation and potentially a private company not publically traded.
If the carve-out ends up being something in which Olympus still has an ownership interest, Olympus may still have access to technology developed by the carve-out company. This could serve the interests of the medical and scientific divisions of Olympus.
Under this joint venture scenario, the expertise of JIP to cut costs and restructure the imaging division may be what Olympus needed to try to salvage the camera business.
Carving out the imaging division from Olympus Corporation would make the stock of the parent company more appealing to investors as the carve-out company would be a separate entity.
We also do not know at this time if there is the potential for Olympus to buy-out JIP under a joint venture scenario should the imaging division become profitable in the future.
The joint venture possiblity is pure conjecture on my part.
I checked the price of Olympus Corporation stock this afternoon. It has risen from 1922 Yen to 2132 Yen, so the carve-out news is being well received by investors.
So, change is coming down the road. Those of us who own and use Olympus products can be encouraged that the imaging division does not appear to be closing down immediately. This was the big fear in the rumors that surfaced in 2019. It may, or may not, continue under new owernship and in a new corporate structure. This will not be known until the end of September 2020, with the potential deal closing at the end of 2020.
At this point it is unclear how much involvement that Olympus may have in the new carve-out company should it be created… although there is an initial indication (as noted with my earlier bold face highlighting), that Olympus may still be involved operating the imaging business with JIP.
It will be interesting to see what happens to other camera manufacturers and brands in the future. I wonder if those that have not been as innovative as Olympus will survive in any form, or if they will simply be shut down as the camera market continues to contract.
For my part, I have no regrets buying my Olympus camera gear. It is still the finest camera equipment that I have had the pleasure to own and use. I anticipate that I will be using it for many years to come.
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