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Investor: ‘Break up Sony’

May 14, 2013

Activist investor Daniel Loeb has called on Sony Corp to spin off its lucrative entertainment arm. Loeb said his Third Point hedge fund had accumulated a little more than 6 per cent of Sony’s shares – a stake worth $1.1 billion – making it the largest stakeholder in the inventor of the Walkman portable music player and Trinitron TV.

In a letter personally delivered to CEO Kazuo Hirai the fund manager said Third Point was willing to put up another $1.97 billion to support an initial public offering of up to a fifth of the entertainment arm, which includes a Hollywood film studio (Columbia) and a leading music label.

Loeb, who was behind the shake-up at Yahoo last year, endorsed Hirai’s attempts to revive Sony, but said the problems of the company’s electronics business distracted from the “hidden gem” of Sony Entertainment.

While Sony has sold off real estate and other assets to cover losses on CE, Hirai sees the entertainment business as core to the company’s long-held vision of convergence.

“The entertainment businesses are important contributors to Sony’s growth and are not for sale,” Sony said in response to Loeb’s proposal. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy.”

Sony shares have already doubled this year amid a rally in Japanese shares as foreign investors bet economic policies of Prime Minister Shinzo Abe will pull the economy out of a two-decade slump.

Investors and analysts have argued for years that Sony could be worth more in a break up because of a decade-long slump in its electronics business as it ceded ground to rivals such as Apple in portable music and Samsung Electronics in flat panel TVs.

Rather than a traditional IPO, Loeb has proposed selling a 15-20 per cent stake in Sony Entertainment through a rights offering to existing Sony shareholders. The move would allow the parent company to shift some debt off its balance sheet.

Taking the unit public would provide incentives for its executives to run the operations more efficiently. Raising its profit margins to the industry average could in theory add another 625 billion yen in market value, Loeb said.

Loeb cited Sony Financial, the profitable insurance arm that was spun-off but is still majority-owned by Sony, as an example of how the move could be beneficial for the group.

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