Sony Corp. (6758) directors are discussing whether to adopt billionaire Daniel Loeb’s proposal for an initial public offering of its entertainment business, a week after the TV maker said the assets weren’t for sale.
“It’s only a start,” Chief Executive Officer Kazuo Hirai said of the talks, without giving a timeframe for any response. “It’s important that the board will discuss this and come to a decision that represents Sony’s stance.”
Sony has jumped 22 percent since Third Point LLC’s Loeb told Hirai that partially spinning off the entertainment assets would bring a higher valuation and raise cash for the company, whose movie studio topped the U.S. box office last year. Film and financial services earnings have helped the Tokyo-based company counter nine straight annual losses from making TVs.
“Sony will consider how to keep control of the company and may be forced to throw a bone to prevent a long, ugly fight,” said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp. “They will try to give up as little as possible and are no doubt receiving advice on how to fight off the aggressor.”
Elissa Doyle, a spokeswoman for Third Point, declined to comment.
Sony, which held its corporate-strategy meeting yesterday, rose to the highest in more than two years in Tokyo. Japan’s biggest TV maker surged 5.9 percent yesterday to 2,290 yen, extending gains this year to 139 percent, while Japan’s benchmark Nikkei 225 Stock Average rose 1.6 percent. Sony American Depositary receipts fell 3.3 percent to $22.15.
The Nikkei newspaper reported that the board may discuss a potential IPO. Hirai said during a news conference yesterday that talks have started, and he declined to give his view on the proposal.
Third Point on May 14 proposed selling as much as 20 percent of the entertainment units, including the company’s U.S.-based film and television studio and its music business, in an IPO.
Hirai, who started his career at Sony’s music division, previously said he didn’t plan to sell the entertainment assets as he builds services linking Xperia smartphones, PlayStation devices and Bravia TVs with Sony movies and music.
Expectations that Sony will take action are driving the stock higher, said Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo Holdings Inc. (8707)
“Realistically, it’s not clear whether a spinoff will strengthen Sony,” the analyst said.
In addition to raising cash to help turn around the electronics unit, the IPO would provide a more disciplined focus on the entertainment group, Loeb said in a May 14 letter to Hirai.
Sony’s movie studio makes the “Spider-Man” and “Smurfs” movies. Television production includes “Breaking Bad” for AMC Networks Inc. (AMCX:US) The company owns Sony Music Entertainment, home to Alicia Keys and Bruce Springsteen, while its Sony/ATV Music Publishing venture with Michael Jackson’s estate collects royalties on music from The Beatles and Jackson.
Loeb has invested $1.1 billion in Sony to become the company’s biggest investor, he said in his letter, and is willing to bet more.
The investor said he would underwrite a rights offering in the entertainment unit that would give shareholders the opportunity to participate. Third Point, which manages $13 billion, would “backstop” the IPO for as much as $2 billion, he said in the letter.
The electronics maker has missed a three-year rally in media stocks because of losses in its hardware businesses. Since January 2010, the S&P 500 Media Index has more than doubled, while ADRs of Sony, with one of the world’s largest collections of movie, television and music businesses, has declined 24 percent.
Hirai yesterday maintained Sony’s target for an operating margin of 5 percent in the 2014 fiscal year as Japan’s biggest maker of TVs and smartphones sharpens its focus on high-end products.
Sales will probably be 8.5 trillion yen ($83 billion), and its return on equity will be 10 percent, the company said in a statement yesterday. Sony also targets 1 trillion yen in revenue from its games division, though it reduced its operating-margin target for the year ending March 2015 to 2 percent from an earlier estimate of 8 percent.
Sales of the PlayStation Vita handheld player were lower than expected, and the company predicts higher expenses for promoting the PlayStation 4 home gaming console for introduction by year’s end, Hirai said.
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