Dan Loeb successfully orchestrated the ouster of former Yahoo CEO
Hedge-fund manager Daniel Loeb has urged Sony to partially spin off its entertainment division in a letter addressed to CEO Kazuo Hirai on Tuesday.
In his letter, Loeb not only suggested Sony make some of its shares in the entertainment division public, he offered to facilitate a public offering. He argued that offering shareholders and other investors the opportunity to own some of Sony's entertainment division — including the movie and TV studio and the record label — would enable the company to focus on its electronics division and offload some of its debt.
Loeb’s Third Point now owns a 6.5 percent stake in Sony, a holding valued at $1.1 billion. The New York Times reported early Tuesday that Loeb, who just last year orchestrated the ouster of former Yahoo CEO Scott Thompson is now in Japan to hand-deliver the letter to Hirai, who assumed control of the company last year.
“While the Entertainment businesses are top performers within Sony, profit margins fall short when benchmarked versus their U.S.-listed competitors despite superior scale and leading market positions,” Loeb wrote in the letter. “We believe the underperformance would be remedied by a more disciplined management approach to Sony Entertainment.”
Rumors have swirled for more than a year that there would be some shake-up on the entertainment side of Sony’s business, which includes its film studio, TV studio and record label. The company's once dominant electronics business has lagged behind rivals Apple and Samsung, while its film studio operates at lower profit margins than many of its competitors.
Sony did just report a profit for the first time in five years, but that was due in large part to cost-cutting and the sale of its New York headquarters.
Also Read: Earnings: Sony Makes First Profit in 5 Years
The company has repeatedly denied that its film studio is up for sale, but that hasn't prevented Loeb from calling for change.
As the Times noted in its piece, activist shareholders like Loeb can ruffle feathers in Japan, a society that emphasizes respect and where management changes slowly. This is one reason he framed his letter more as a polite request than a demand, both praising Hirai’s stewardship since taking over Sony in 2012 and framing his request as a plan for strengthening Sony.
"Third Point would not have made this substantial investment if we did not believe in a bright future for Sony’s global brand, superior technology, and dedicated employees," Loeb wrote. "We are confident that by acting as partners, Sony will grow stronger. For Sony to Change, Sony Must Focus."
Third Point backed Jay Penske's purchase of Variety last year.