Hedge fund CEO wants Sony to break up biz units

Hedge fund CEO wants Sony to break up biz units

Summary: Daniel Loeb, founder of Third Point, one of Sony's largest shareholders, wants the company to spin off its entertainment division and sell its profitable insurance unit, in order to focus on reviving the electronics arm.

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TOPICS: Tech Industry, Japan
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Daniel Loeb, founder of Third Point, reportedly hand-delivered a letter on Tuesday to Sony CEO Kazuo Hirai.

An American hedge fund billionaire has called for the breakup of Sony, in a bid to tighten its focus on the electronics division.

The call on Tuesday came from Daniel Loeb, founder and CEO of hedge fund Third Point, known for ousting Yahoo's former CEO Scott Thompson and poaching Marissa Mayer from Google to run the company, the New York Times reported, citing people familiar with the matter.

Sony's entertainment arm includes one of the biggest film studios in Hollywood and one of the largest music labels in the world.

Loeb also signalled he would accept a seat on Sony's board. The hedge fund has quietly amassed a stake of about 6.5 percent in Sony, making it the one of the company's biggest shareholders, noted NYT.

The hedge fund CEO had reportedly flown to Tokyo over the weekend for three days of meetings with government officials, regulators and senior Sony executives, the people briefed with the matter, told the New York Times. He also hand-delivered a letter on Tuesday to the company's CEO Kazuo Hirai, which praised his turnaround effort but asked for more, according to NYT.

Loeb: Sony must focus to succeed

"While Third Point supports your agenda for change, we also believe that to succeed, Sony must focus," Loeb wrote in the letter, reviewed by NYT. The investor believes spinning off a portion of the entertainment business to Sony shareholders could lead to higher profit margins, while helping to revive the core electronics business.

According to Loeb in the letter, even though the entertainment division accounts for more than 40 percent of the company's enterprise value, it needed discipline to raise its profit margins. Loeb estimates a partial spinoff of the entertainment business could boost Sony's share price by as much as 60 percent.

It should also consider selling its 60 percent stake in Sony Financial, which accounted for much of the company’s profit last quarter. The unit, which largely sells life insurance policies, has real estate holdings and stakes in other companies, the sources said. Loeb is also expected to argue Sony's electronics division must slash more costs by focusing on a few core products.

Hirai is set to make a presentation about the company's turnaround plan next week. Sony reported its first annual profit in five years last week, but had reached the milestone largely due to the weakening yen and some belt-tightening, including business consolidation and the sale of its American headquarters building.

In response, Sony has said its entertainment businesses were important to its growth strategy and "are not for sale", a Sony spokesperson told Reuters in a separate report. 

Topics: Tech Industry, Japan

Ellyne Phneah

About Ellyne Phneah

Elly grew up on the adrenaline of crime fiction and it spurred her interest in cybercrime, privacy and the terror on the dark side of IT. At ZDNet Asia, she has made it her mission to warn readers of upcoming security threats, while also covering other tech issues.

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  • Remember When Sony Invented The Walkman?

    Such a device could never have been created by a company that owned a record label whose revenues it wanted to protect. And sure enough, more recently Sony completely failed to see the logical successor to the Walkman, namely the personal MP3 player. It was left to other companies, like Diamond and Apple, to innovate that.

    Even if Sony were not to split up, but reorganize itself into independent business units that were not allowed to veto each other's innovations, that could also be a step forward.
    ldo17
  • It's actually not a bad idea

    Sony has morphed from an electronics company into a conglomerate and the change was not an improvement.
    John L. Ries