Daiwa Asset Management Co., which bought Sony Corp. shares last year as it bet a weaker yen would boost earnings, is opposed to hedge-fund manager Daniel Loeb’s proposal to spin off the electronic maker’s entertainment unit, claiming it will drain the company of a source of profits.
“If you separate the entertainment business, which is making stable profits, then profits are going to flow out of Sony,” Mitsuhiro Shima, a senior fund manager at Daiwa, said in a telephone interview. “It’s not a good proposal.”
Loeb, who successfully pushed for an executive shakeup at Yahoo! Inc., will need to overcome a history of failed efforts by activist investors in Japan, including Christopher Hohn’s Children’s Investment Fund Management LLP efforts to wring profits at Tokyo-based Electric Power Development Co. Opposition from Japanese fund managers may give support to Sony’s response so far that its units are not up for sale.
Loeb’s Third Point LLC hedge fund, Sony’s largest shareholder with a $1.3 billion stake in Sony, is pushing for the Tokyo-based company to sell as much as 20 percent of its entertainment business and focus on the “considerable and under-appreciated value” of its electronics unit.
Sony responded that the unit is not for sale as its entertainment divisions are “important contributors.” The company’s shares are up 9 percent since Loeb’s proposal was disclosed on May 14. These gains will be fleeting as profits drop, Shima said. Sony shares fell 1.7 percent to 2,046 yen today in Tokyo.
“This proposal is just to raise Sony’s share price,” he said. “It doesn’t matter if you say you will continue to keep hold of the management rights, the profits will leave.”
Daiwa Securities Group Inc., Daiwa Asset’s parent, held a total of about 5 million Sony shares, or 0.5 percent, as of April 30, including those held by Daiwa Asset’s active investment and exchange-traded funds, according to data compiled by Bloomberg.
Shima declined to say whether his funds, including the Daiwa Ryusei Japan Stock Open, still owns the shares, citing company policy.