Third Point Targets Sony, Seeks Spin-Offs

May 14 2013 | 11:25am ET

Shareholder activism has failed to sway the Japanese companies that have been its targets, but Third Point's Dan Loeb isn't discouraged.

The New York hedge fund manager today announced a US$1.1 billion stake in Sony and quickly called for the company to spin-off part of its entertainment business. Loeb also indicated that he'd accept a seat on Sony's board of directors.

Loeb spent the weekend in Tokyo meeting with government officials and Sony executives, hand-delivering the letter containing his demands. The missive praises Sony CEO Kazuo Hirai—indeed, The New York Times reports that Loeb was impressed with Hirai after meeting him and his deputies—but argues that more could be done.

"While Third Point supports your agenda for change, we also believe that to succeed, Sony must focus," Loeb wrote. In addition to a public offering of the entertainment business, Loeb wrote that Sony should consider shedding other non-core businesses, including its profitable insurance business.

Loeb proposed a partial spin-off of Sony Entertainment, suggesting that 15% to 20% of the unit be given to shareholders, and offering $2 billion to backstop an initial public offering. Loeb is also targeting Sony's real-estate holdings and holdings of other companies, and plans to seek major cost cuts in the company's electronics division.

"Third Point would not have made this substantial investment if we did not believe in a bright future for Sony's global brand, superior technology and dedicated employees," Loeb continued. "We are confident that by acting as partners, Sony will grow stronger."

But Loeb faces a tough road: Western investors are viewed with suspicion by Japan's executives, and previous efforts by hedge funds to force change have come to nothing. But Loeb and others apparently believe that the economic policies backed by new Prime Minister Shinzo Abe could change Japan's corporate culture.

"Under Prime Minister Abe's leadership, Japan can regain its position as one of the world's pre-eminent economic powerhouses and manufacturing engines," Loeb said.

A spokesman for Sony noted that Hirai believes the entertainment business is an important contributor to Sony. "We are focused on creating shareholder value by executing on our plan to revitalize and grow the electronics business, while further strengthening the stable business foundations of the entertainment and financial services businesses," Shiro Kambe said. "We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy."

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