Sony Mulls Loeb Plan as Hirai Says Entertainment Crucial
Sony Corp. (6758) Chief Executive Officer Kazuo Hirai said movies and music are crucial to the company’s revival as he spoke to investors three days after billionaire Daniel Loeb strengthened his push to spin off the businesses.
The board will use outside information to “thoroughly discuss” the proposal from Loeb’s Third Point LLC to sell as much as 20 percent of the entertainment assets, Hirai said at the annual shareholder meeting today. The stock is up 7.3 percent since Loeb announced his plan last month, which he bolstered on June 17 by increasing his Sony stake.
Hirai is riding a winning streak, with the shares more than doubling this year, orders for PlayStation 4 video-game consoles higher than early estimates and Xperia smartphone shipments in Japan reaching a three-year high. Sony Pictures Entertainment this week announced dates for the third and fourth installments of the “Amazing Spider-Man” franchise.
“My mission this year is to turn to a more aggressive approach with bolder measures,” Hirai told investors in Tokyo. “We expect our smartphone operation will improve earnings, making the TV unit profitable is a goal that must be met, we will accelerate expansion in emerging markets and new businesses.”
Even before the board elected today considers Loeb’s proposal for an entertainment IPO, investors seem to agree those assets are undervalued. Sony, the third-best performer in the Nikkei 225 (NKY) Stock Average, has risen more than double its closest domestic peer Panasonic Corp. (6752)
“The share price has risen so, in some sense, the market has woken up to the fact that these assets are indeed more valuable than people had imagined,” said Damian Thong, an analyst at Macquarie Group Ltd. in Tokyo. “The whole point of the carve-out proposal was to expose the value of these assets.”
Sony fell 0.1 percent to close at 2,013 yen in Tokyo today.
Loeb is pushing for talks with Sony directors and investment bankers advising the company on his proposal after the board agreed to consider it. Third Point funds now own 70 million shares, up from 64 million in May, and it is interested in serving on Sony’s board, Loeb said in a June 17 letter to Hirai. That’s about 6.9 percent of outstanding shares.
The Japanese electronics maker is working with Morgan Stanley and Citigroup Inc. to evaluate Loeb’s proposal, people familiar with the matter said last month.
Shareholders approved 13 directors today, including three new members. Loeb wasn’t nominated to the board.
Eikoh Harada, who spent seven years as head of Apple in Japan, and Tim Schaaff, who worked for the iPad maker until 2005, joined the board, while former CEO Howard Stringer and three others left. The third new director was Joichi Ito, a director of the Media Lab at Massachusetts Institute of Technology and also the New York Times Co.
“The company should sincerely accept Third Point’s opinion and do as they say,” Mitsuharu Matsumoto, a 61-year-old individual investor, said after the meeting. “The company needs to introduce an idea of spinoff” in order to boost profit, he said.
Sony said 10,693 shareholders attended the meeting in Tokyo.
“This is a significant proposal that addresses an important business of Sony, the entertainment business,” Hirai said today. “We shouldn’t come to a conclusion in haste for the sake of coming to a conclusion.”
Shareholders who maintained 1 percent or more in voting rights for six months can propose an agenda with a notice eight weeks prior to an annual meeting, according to Nomura Holdings Inc.
Elissa Doyle, a spokeswoman for Third Point, declined to comment before the meeting.
Third Point exited its position in Morgan Stanley within three months of saying the shares of the investment bank may double. The hedge fund, which owned 7.74 million shares of the investment bank valued at $148.2 million at the end of 2012, didn’t list any holding of the firm in a quarterly filing disclosed in May. Morgan Stanley gained 15 percent in the quarter.
“He’s trying to unlock value,” said Amir Anvarzadeh, a Singapore-based manager of Japanese equity sales at BGC Partners Inc. (BGCP) “He doesn’t want to manage a business.”
An initial public offering of the entertainment operations would help the maker of Bravia TVs and Cyber-shot cameras focus on its unprofitable electronics businesses, Loeb said in the May 14 letter.
Sony’s main TV business has lost 762 billion yen ($8 billion) during nine straight annual losses. Without the contribution of profitable entertainment units and an insurance arm, Sony would have booked 130 billion yen in losses in the year ended March 31. The company plans to turn around the electronics segment and has forecast a profit for the business of 100 billion yen this fiscal year, Chief Financial Officer Masaru Kato said last month.
Sony last month forecast a 16 percent increase in profit for the year started April 1 after posting its first net income in four years helped by job cuts, asset sales, a weaker yen and blockbuster movies including “Skyfall.” The film unit was the second-biggest contributor to earnings last fiscal year after the life-insurance division.
“The company officially said its board will assess the proposal and that’s also positive for the stock, regardless of what the company will actually do about it,” said Keita Wakabayashi, an analyst at Mito Securities Co. in Tokyo.
Sony is regaining its “competitive edge” with the new PS4 game console and Xperia smartphones, Loeb said in Third Point’s June 17 letter to Hirai.
Sony’s share of Japan’s smartphone market rose to a three-year high this month, widening its lead over Apple Inc., as new Xperia models and a discount program from the nation’s largest wireless carrier helped stoke sales.
The company also unveiled its new PS4 this month, with orders for the new console running ahead of internal projections, Andrew House, president and group chief executive officer of Sony Computer Entertainment, said last week in an interview.
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