Sony Holdings Blurred by Third Point Swaps, Goldman Bonds

Billionaire Daniel Loeb proposed a breakup of Sony Corp. after saying his hedge fund was its largest owner. Data from Sony, a Goldman Sachs Group Inc. vehicle and Japan’s Finance Ministry don’t support that claim.

As Sony board members deliberate on Third Point LLC’s call for an initial public offering of part of its entertainment assets, shareholdings in the Japanese company are clouded by Third Point’s use of cash-settled swaps and convertible bonds held by Signum Coral Ltd., a special-purpose company set up by Goldman Sachs to repackage a 2012 convertible bond sale.

Third Point has “exposure” to about 64 million Sony shares, according to a letter from Loeb to Sony Chief Executive Officer Kazuo Hirai last month. The stake, which equates to about 6.3 percent of the Japanese company’s stock, doesn’t show up in regulatory filings and is less than the 8.9 percent holding announced by Signum Coral.

“As convertible bonds and swaps are complicated transactions, it’s becoming difficult to know Sony’s shareholder structure,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. Tokyo.

Shareholdings of more than 5 percent of a company have to be reported to Japan’s Ministry of Finance. Third Point hasn’t lodged a notice with the government that its stake exceeds that threshold, according to a search of filings.

The New York-based hedge fund used cash-settled swaps for about 38 percent of its investment, according to the May 14 letter. Japan’s disclosure requirement is exempted if the investor uses a structure that doesn’t transfer voting rights, according to the Financial Services Agency.

Weaker Voice

“It would somewhat weaken the voice of Mr. Loeb” if he wasn’t the biggest owner of Sony, said Tetsuro Ii, president of Commons Asset Management Inc. in Tokyo.

Elissa Doyle, a New York-based spokeswoman for Third Point, declined to comment on its holding or any changes to its investment.

Sony hasn’t confirmed a large-volume holding from Third Point, Yuki Shima, a Sony spokeswoman, wrote in an e-mail. The company’s annual investor meeting is scheduled for June 20.

Goldman Sachs, JPMorgan Chase & Co., Nomura Holdings Inc. and SMBC Nikko Capital Markets Ltd. were hired to manage last year’s 150 billion-yen ($1.5 billion) sale of Sony convertible bonds.

The zero-coupon bonds can be converted into 157 million Sony shares at 957 yen apiece, the Tokyo-based company said in an e-mailed statement last month. If the bonds were redeemed fully, the shares issued would be equivalent to about 13 percent of an enlarged Sony’s stock on issue.

Bond Sale

The note rose 2 percent to 213.20 yen per 100 yen face value as of 2:59 p.m. in Tokyo, according to Nomura Holdings Inc. prices.

Goldman Sachs purchased convertible bonds on the secondary market and the special vehicle was set up to hold them and sell financial products after separating the debt from the equity option, according to a Dec. 7 statement by the investment bank. That vehicle was Signum Coral, according to Signum’s filing to Japan’s finance bureau the same day.

Signum Coral sold a credit product to investors and, separately, options for repurchasing the convertible bonds, according to the statement.

Signum Coral, which holds the part of the convertibles that investors haven’t exercised their rights to repurchase, reduced its Sony stake to 8.91 percent from 10.48 percent, according to a document filed to Japan’s Ministry of Finance on June 4.

Premature Speculation

Sony, maker of PlayStation game consoles, planned to use proceeds of the bond sale to invest in image sensors, repay short-term debts and fund acquisitions, the company said in November.

Loeb is pushing Hirai to sell as much as 20 percent of the entertainment assets, saying the move would help the company boost its stock price and raise cash. Sony shares rose 2.2 percent to close at 2,023 yen in Tokyo trading today. They have risen 7.8 percent since Third Point’s proposal was announced.

Sony will look closely at the proposal, though it’s premature to speculate on the board’s decision, Hirai said at a conference last month in Rancho Palos Verdes, California. An IPO of its entertainment operations would help the world’s third-largest TV maker focus on its unprofitable electronics businesses, Loeb said in the May 14 letter.

“The investor probably wanted to look bigger than it is for the sake of negotiation,” said Yoku Ihara, an investment adviser at Retela Crea Securities Co. in Tokyo.

Yahoo! Revamp

Loeb’s Sony stake was valued at about 115 billion yen, according to his letter. Of that amount, 71 billion yen is in “direct ownership” while the rest is in cash-settled swaps, it said.

The 51-year-old Loeb said his firm would underwrite a rights offering in the entertainment unit that would give shareholders the opportunity to participate. Third Point, which manages more than $13 billion, would be willing to buy up as much as $2 billion of the offering if there isn’t demand elsewhere, according to the letter.

Loeb started Third Point in 1995 with $3 million of assets under management after gaining expertise in private equity, distressed debt, sales and trading during careers at financial firms including Citigroup Inc., according to Third Point.

Loeb is a director of Yahoo! Inc. and Third Point owns a stake in the Web portal. He was instrumental in pushing for the ouster of CEO Scott Thompson, which paved the way for the appointment of Marissa Mayer in July 2012.

Third Point also owns stakes in Japan Tobacco Inc. and Virgin Media Inc., according to its monthly report for April.

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