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Hedge fund billionaire seeks break-up of Sony

Andrew Ross Sorkin and Michael J. De. La. Merced | May 15, 2013
An American hedge fund billionaire has called for a breakup of the entertainment and electronics colossus Sony, possibly setting off a battle that could roil Japan’s famously staid 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," the hedge fund manager wrote in his letter.

Despite its decade-long slump, Sony, the 67-year-old electronics pioneer, remains one of the most prominent companies in Japan, with a market value of roughly $18 billion.

Still, Mr Loeb has plenty of ammunition. Shares of Sony have plunged nearly 85 perc ent over the last 13 years. The company long ago ceded its crown as the king of cool electronics to Apple, and its dominance in televisions was eroded by the emergence of Korean rivals like Samsung and LG.

Last week, Sony reported its first annual profit in five years. But it reached that milestone thanks largely to the weakening yen and some belt-tightening, including the consolidation of businesses and the sale of its American headquarters.

Mr Hirai, is scheduled to make a presentation about the company's turnaround plan next week. He has argued that despite having come late to the era of digital media, the company that made the Walkman, the Trinitron television and the PlayStation can rebound.

To Mr Loeb, more must be done, starting with the spinoff of Sony Entertainment. Though the division accounts for more than 40 per cent of the company's enterprise value, he said in his letter that it needed discipline to raise its profit margins. Mr Loeb estimated that a partial spinoff of the entertainment business could bolster Sony's share price by as much as 60 percent.

The company should also consider selling off its 60 percent stake in Sony Financial, which largely sells life insurance policies and has real estate holdings and stakes in other companies, according to the people briefed on the matter. And Mr Loeb is expected to argue that Sony's electronics division must slash more costs, including by taking a cue from its protégé, Apple, in focusing on a few core products.

Recently, Mr Loeb has publicly expressed his interest in Japan. Referring to the changes by the Abe government, he called it "a huge game change" at an industry conference last week. "And there's a lot more room to go," he added.

Mr Abe has called his revival effort a plan of "three arrows," including aggressive monetary easing by the Bank of Japan and enormous stimulus spending by the government.

So far, that effort appears to have drawn investor plaudits. The yen weakened in value last week, to 100 to the dollar, a level unseen in four years, helping local companies like Sony and Toyota. And the Nikkei 225-stock index has risen 43 percent so far this year. During the same time two years ago, the Nikkei was down 5.7 per cent.

 

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