Third Point, the hedge fund led by billionaire Daniel Loeb, has proposed Sony Corp (6758). sell part of its entertainment business in an initial public offering, according to a letter obtained by Bloomberg News.
Third Point asked Sony to sell as much as 20 percent of the business in an IPO so the company can focus on electronics, according to the May 14 letter given to Chief Executive Officer Kazuo Hirai. The businesses aren’t for sale, Sony said in an e-mailed statement.
Hirai has used job cuts, asset sales and blockbuster movies including “Skyfall” and “The Amazing Spider-Man” to revive earnings after four years of losses at an electronics business that has struggled to win consumers. The hedge fund, which holds 115 billion yen ($1.1 billion) of Sony shares, said it can underwrite a rights issue for as much as 200 billion yen to support an IPO, according to the letter.
“Spinning off is not positive for Sony,” said Satoshi Yuzaki, general manager at Takagi Securities Co. in Tokyo. “The entertainment unit has stabilized Sony’s sales and profit.”
Worth over $120 billion in 2000, the maker of Walkman music players has plummeted in value to about $18.7 billion because of declining TV sales and a consumer shift toward mobile devices made by Apple Inc. and Samsung Electronics Co.
Sony’s motion picture unit, which includes the Columbia studio, accounted for 26 percent of operating income in the year ended March 31 while the music division, featuring Adele and Bruce Springsteen, represented 20 percent, according to data compiled by Bloomberg.
“The entertainment businesses are important contributors to Sony’s growth and are not for sale,” the Tokyo-based company said in an e-mailed statement. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy.”
Third Point declined to comment. The New York Times reported Third Point’s proposal earlier.
Loeb, 51, is a director of Yahoo! Inc. (YHOO:US) and his fund is the biggest investor in the Web portal with a 6.7 percent stake, according to data compiled by Bloomberg.
In the letter, Third Point said it would accept a seat on Sony’s board of directors if offered one.
Sony this month named three new candidates for its 13-member board. They will replace four retiring directors, including chairman and former CEO Howard Stringer. Shareholders will vote on the new board at the company’s June 20 annual general meeting.
In January, Third Point took an 8.2 percent stake in Herbalife Ltd. amid allegations from Bill Ackman’s Pershing Square Capital Management LP that the direct seller of nutrition shakes was a pyramid scheme.
Loeb’s fund also owns stakes in Japan Tobacco Inc (2914). and Virgin Media Inc (VMED)., according to its monthly report for April.
The value of Sony would rise if the entertainment business was listed, Third Point said in the letter.
An IPO would make Sony easier to understand while also making the company more vulnerable to swings in the consumer electronics industry, said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo.
“I’m for a spinoff. Sony has many segments, so it’s getting difficult to figure out what Sony is,” Yasuda said. “However, there is no possibility that Sony would accept the suggestion. It would be unstable if Sony only had electronics unit.”
Sony last week forecast a 16 percent increase in profit as it rolls out new Xperia smartphones and Bravia TVs to recapture market share lost to Samsung. Sony expects to sell 16 million TVs this fiscal year, up from 13.5 million, as it focuses on ultra-high definition screens that offer resolution four times sharper than conventional models.
The company reiterated its target for the TV operation to post a profit this year after racking up 800 billion yen in losses since 2004.
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