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Want A Piece of Sony?

Posted by: Kenji Hall on September 4, 2007

Now that Sony’s financial unit will get its much-awaited IPO on Oct. 11, the next question is: How will Sony spend the cash? Back in January, I wrote how analysts were drawing up their own wish-lists for ways Sony should use the money.

Many analysts want to see the spoils spread to the various electronics divisions, such as flat-panel TVs and games, both cash-intense businesses that require big spending to keep products competitive, both in terms of price and technologies. But investors in the new Sony Financial Holdings will probably prefer to see a big chunk of the money reinvested into the financial business.

The one thing that’s for sure about the IPO is this: Sony will make a killing. It could raise up to $3 billion for the Japanese electronics and entertainment Goliath, making it Japan’s largest public offering this year. One reason the financial unit is so valuable—by some estimates, nearly $8 billion—is that it’s historically been one of Sony’s most profitable divisions.

In the fiscal year through March, the online banking and insurance business accounted for a miniscule 4.6% of the company’s total $71 billion in revenues. But it contributed more to overall operating income than any other unit besides electronics, and its margins were around 13%. (Reuters estimates the unit’s price-to-earnings ratio at 59, compared with 44 for T&D Holdings, Japan’s only listed life insurer.)

That’s why Chairman and CEO Howard Stringer won’t be cutting it loose any time soon. Sony plans to hold onto about 60%. Part of the sale of the remaining 40% will come from existing holdings—up to 870,000 shares—and the rest, about 75,000, will be newly issued. A preliminary price will be set on Sept. 18 and the offer price will be announced on Oct. 1.

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