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Sony Rejects Dan Loeb’s Pitch to Spin Off Semiconductor Business and Focus on Entertainment

Decision follows an ”extensive analysis“ of activist investor’s proposal

Sony has said “thanks, but no thanks” to Third Point LLC activist investor Dan Loeb’s proposal to spin off its semiconductor business and focus on entertainment.

The Japanese company responded to Loeb’s June pitch in a lengthy letter on Tuesday. Sony said that after reviewing the matter for three months, its board had unanimously voted against breaking up the company.

Below are the most relevant paragraphs from Tuesday’s letter to shareholders from CEO Kenichiro Yoshida:

Sony’s Board and management team, along with external financial and legal advisors in Japan and the U.S., conducted an extensive analysis of Third Point’s recommendations.

Following this review, Sony’s Board, which is comprised of a majority of independent outside directors with diverse experience in a variety of industries, unanimously concluded that retaining the semiconductor business (now called the Imaging & Sensing Solutions (“I&SS”) business) is the best strategy for enhancing Sony’s corporate value over the long term.  This is based on the fact that the I&SS business is a crucial growth driver for Sony that is expected to create even more value going forward through its close collaboration with the other businesses and personnel within the Sony Group.  The Board also reaffirmed that to maintain and further strengthen its own competitiveness, it would be best for the I&SS business to stay within the Sony Group.

In its letter, Third Point described our semiconductor business, which is centered on image sensors, as a “Japanese crown jewel and technology champion.” Sony’s Board and management team share this view and are excited about the immense potential the I&SS business brings Sony. We expect it to not only further expand its current global number one position in imaging applications, but also continue to grow in new and rapidly developing markets such as the Internet of Things (“IoT”) and autonomous driving. We also expect it will contribute to the creation of a safer and more reliable society through its innovative technology.

Read the full letter here.

In June, Loeb and Third Point said Sony’s “complex structure and business holdings” has led to a stock price discount. “Investors are reluctant to own Sony shares because of the difficulty in forecasting so many business,” the firm argued in a 102-page presentation titled “A Stronger Sony.” Third Point — after disclosing it had built up a $1.5 billion stake in Sony — recommended four remedies to help the company “unlock its full value.”

  1. Spinning off its semiconductor division as “Sony Technologies” and listing it in Japan; the division accounts for more than 70% of smartphone image sensors and could be worth $35 billion in five years, according to the New York-based firm.
  2. Refocus “New Sony” as a “leading global entertainment company.”
  3. Consider selling off its equity stakes in companies like Spotify, Olympus, M3 Inc. and Sony Financial.
  4. Reinvest the money earned from divesting its equity stakes back into the business.

Yoshida, in the company’s letter to shareholders, said Sony views its sensors business as something that can evolve as artificial intelligence and other emerging technologies gain traction. Sony’s stock dipped about 0.5% in early trading on Tuesday; the company’s stock is up from about $53 per share in early July to nearly $60 on Tuesday.