U.S-based hedge fund Third Point LLC on Monday urged Japanese consumer electronics giant Sony Corp. (SON.L,SNE) to spin off its entertainment division and reiterated its offer to serve on Sony's board of directors.
Third Point has increased its stake in Sony to 70 million shares valued at 136.5 billion yen, or $1.4 billion, saying that it was a sign of increased confidence in the company's direction under the leadership of Sony's President and CEO Kazuo Hirai. Sony is the maker of the PlayStation game console, Xperia smartphones and Bravia television sets.
In a letter to Hirai, Third Point Chief Executive Officer Daniel Loeb reiterated his call for Sony to sell a 15 to 20 percent stake in Sony Entertainment, which comprises the company's movie and music businesses. He also noted that Sony appeared to be regaining its competitive edge following the debut of the PlayStation 4 and strong sales of Xperia in Japan.
Further, Loeb appreciated Sony's decision to retain financial advisors to help evaluate Third Point's proposal to publicly list a minority stake in Sony Entertainment through a rights offering that will be backstopped by Third Point.
"The newly-listed entity will thrive with a governance structure which focuses on increasing profitability, competitiveness and accountability. We expect that this transaction will strengthen rather than diminish Sony's ability to exploit meaningful synergies between the Entertainment and Electronics divisions, a goal we share," Loeb said in his letter.
Loeb noted that Hirai should serve as chairman of both boards, to promote synergies between Sony Entertainment and Sony Corp. Terming the entertainment division as a "sleeping giant", the billionaire investor said that the right leadership at the board level was imperative.
Further, Loeb said that a capital shortfall prevented Sony from taking advantages of attractive acquisition opportunities. He noted that instead, Sony resorted to joint ventures and costly loans to engage in strategic transactions such as those in music publishing.
According to Loeb, Sony could serve as a shining example of how structural reforms, the "Third Arrow" of Prime Minister Shinzo Abe's economic plan, can be implemented successfully through constructive shareholder engagement.
Loeb noted that while Third Point has not yet been asked to discuss its ideas with Sony's investment bankers or board, it would like to do so promptly.
"We hope that after seriously considering the merits of our proposal, Sony's Board will share the enthusiasm that other shareholders have resoundingly expressed for it. We can think of no better opportunity for you and the Board to demonstrate real commitment to your declaration that "Sony Must Change," Loeb concluded his letter.
Sony is scheduled to hold its annual shareholder meeting on Thursday, where a new board is expected to be voted in.
SNE closed Monday's trading at $20.72, up $0.84 or 4.23 percent on a volume of 8.07 million shares.
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