November 22, 2017

DealBook: Sony Rebuffs New Call to Sell Entertainment Unit

Kazuo Hirai, chief of Sony, at a corporate strategy presentation in Tokyo on Wednesday.Kimimasa Mayama/European Pressphoto AgencyKazuo Hirai, chief of Sony.

TOKYO – Sony’s chief executive, Kazuo Hirai, reiterated on Thursday that the company’s music and movie businesses were not for sale, striking a cautious tone on a renewed push by the American activist investor Daniel S. Loeb to break up Sony’s sprawling empire. He added that the company’s board would continue to study the matter.

Speaking to shareholders at Sony’s annual general meeting in Tokyo, Mr. Hirai said that movies and music were an indispensable part of Sony’s growth strategy. Mr. Loeb’s firm, Third Point, which claims to be one of Sony’s biggest shareholders, has proposed that Sony should partially spin off its entertainment arms and invest the proceeds in its struggling electronics business.

“The entertainment business plays an important role in Sony’s future growth,” Mr. Hirai told investors, saying it added critical value to the company and should not be let go. “This proposal strikes at the heart of what kind of company Sony ultimately will become in the future. We intend to take our time in discussing it.”

Mr. Hirai’s remarks came after Mr. Loeb upped the ante in what is a rare bid to shake up one of Japan’s most storied companies. In a letter sent to Sony’s board on Tuesday morning, Mr. Loeb disclosed that Third Point had raised its stake to about 7 percent, or about 70 million shares, from 6.5 percent last month, and urged Mr. Hirai to take his proposal seriously.

On top of raising capital to help bolster Sony’s electronics strategy, Mr. Loeb argues that giving the entertainment business its own board would provide stronger oversight of revival efforts and spending plans. Third Point has also requested a seat on Sony’s board.

But some analysts have questioned the wisdom of spinning off some of Sony’s profitable content businesses — which could cut off much of the company’s access to their profits — while keeping its unprofitable electronics divisions. Over the last 10 years, Sony made most of its operating profit from its content and insurance arms, while the electronics operations lost money.

Sony’s cumulative operating profit over the last decade would have been almost twice as high if not for its ailing electronics business, according to Atul Goyal, technology analyst at Jefferies Company.

“Sony should spin off electronics instead of content,” Mr. Goyal wrote in a report released ahead of the shareholders meeting.

The funds raised, he added, could be used to finance growth of Sony’s already- lucrative content business. Such a move, he said, would “add significantly more value for investors.”

An official decision on Mr. Loeb’s proposal rests with Sony’s new board, which added three new members on Thursday: Joichi Ito, director of the Media Lab at the Massachusetts Institute of Technology; Eiko Harada, chairman of McDonald’s Japan; and Tim Schaaff, former head of Sony Network Entertainment. Mr. Ito also sits on the board of The New York Times Company.

Shareholders present at Thursday’s meeting in Tokyo appeared to side with Mr. Hirai’s cautious stance on Mr. Loeb’s proposal. They appeared to be banking on assurances by Mr. Hirai that he could bring Sony’s electronics back to profitability this year.

“I’m glad he made it clear that breaking Sony up is not something he feels is good for the company,” said Masayuki Suzuki, 60, a longtime Sony shareholder who runs a building maintenance company in Tokyo. “There’s only one way Sony can revive, and that’s by making great gadgets. Just look at Apple.”

Sony looks set for some successes in electronics. Its sleek Xperia Z smartphone is a best seller in Japan and could soon be available in the United States.

Investors are also excited about Sony’s upcoming PlayStation 4 home game console, which won emphatic praise from gamers at the E3 conference last week in Los Angeles. It is also a more powerful machine and less expensive than Microsoft’s Xbox One; analysts have said Sony stands a good chance of winning the next-generation console wars.

Some shareholders seemed skeptical of Mr. Loeb’s intentions.

“I don’t get the impression that he’s interested in Sony in the long term,” said Akihisa Ishikawa, 31, who works in publishing in Tokyo and bought Sony shares about six years ago, but has since seen them decline in value. “Is he just out to make a quick buck? If so, Sony is right not to show interest.”

It was not immediately clear if Mr. Loeb or any other representatives from Third Point were present at the Tokyo meeting. None of the shareholders who asked questions appeared to be from Third Point, or identified themselves as such. Reuters reported late on Wednesday that Mr. Loeb would not be attending. Third Point officials were not immediately reachable for comment.

Shares in Sony climbed 150 percent from mid-November to late May, propelled by a weak yen and high hopes for an economic recovery brought about by the new economic policies of Prime Minister Shinzo Abe. Share prices rose at an especially rapid clip after May 14, when Mr. Loeb first lodged his proposal with Sony in an open letter, jumping 7 percent in a week.

But the company’s shares have since fallen back somewhat, as the yen has strengthened and the company has given few signs of actively considering Mr. Loeb’s suggestions.

Sony shares closed at 2,013 yen in Tokyo on Thursday, down 0.1 percent from a day earlier.

A version of this article appeared in print on 06/20/2013, on page B8 of the NewYork edition with the headline: Sony Rejects Call to Divide Its Businesses.

Article source: http://dealbook.nytimes.com/2013/06/19/sony-rebuffs-new-call-to-sell-entertainment-unit/?partner=rss&emc=rss

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