Third Point’s Daniel Loeb Moves to Divvy up Sony

Michael Teague  |

Amid a recent fervor in the West for Japanese equities, Third Point Management’s Daniel Loeb was in Japan over the weekend meeting with executives at Sony (SNE), reportedly in an attempt to convince electronics and entertainment giant to spin off its entertainment business into a separate company.

Loeb’s hedge fund has over time gathered a 6.5 percent stake in the company, 64 million shares estimated to be worth some $1.1 billion. In a letter to Sony CEO Kazuo Hirai delivered after the visit, Loeb had a great deal of praise for the company’s recent statements about making the changes necessary for a turnaround.

At the same time, the language used in the letter, while laudatory, was unequivocal. Loeb was praising the company’s public statements about its intentions of implementing changes, but nowhere did he refer to any specific thing the company has actually done since Hirai took the helm last year.

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Instead, Loeb was rather heavy-handed right off the bat about the necessity of setting up Sony Entertainment on its own, tying the company’s future into the future of the whole country: “Sony stands at the crossroads of compelling corporate opportunity and massive Japanese economic reform. Under Prime Minister Abe’s leadership, Japan can regain its position as one of the world’s preeminent economic powerhouses and manufacturing engines.”

Indeed, Sony, once dominant in electronics, having invented the Walkman and more recently the Playstation, has seen that part of its business in a state of decline over the last decade, having lost much of its market share to companies like Apple (AAPL) and Samsung. Furthermore, the company’s shares have shed over 80 percent of their value since the new millennium.

Loeb in his letter maintained that the company’s entertainment division was a “hidden gem”, one whose value is currently being hindered by being tethered to its electronics division. The hedge fund manager reminded Sony’s CEO that about 40 percent of his company’s enterprise value came from its entertainment division, which includes television, film, publishing, international cable, and music.

Hirai is expected to speak publicly on his own turnaround plan for Sony this week, and has so far roundly rejected any attempts to break up the company.

Given the reaction on Wall Street, however, with Sony’s shares soaring over 10 percent on Tuesday to as high as $22, Loeb clearly thinks he has an opportunity, irrespective of how the company’s current leadership may feel about his plan.

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