Tokyo - Japan's Sony on Tuesday rejected a proposal from activist shareholder Daniel Loeb to spin off part of its entertainment business, arguing it could still squeeze synergies from its marriage of content and hardware while promising greater disclosure.
Sony's decision could end a three-month effort by Loeb's Third Point LLC hedge fund to convince the company to sell as much as a fifth of its money-making entertainment arm - movies, TV and music - to free up cash to revive the electronics business.
“Sony's board of directors has unanimously concluded that continuing to own 100 percent of our entertainment business is the best path forward and is integral to Sony's strategy,” Sony CEO Kazuo Hirai said in a letter to Loeb, which was released by the company.
Third Point did not return a request for comment.
The overture by the Californian billionaire had been seen as a test of Japan Inc’s openness to foreign investment and influence under “Abenomics”, as Prime Minister Shinzo Abe's government pushes for corporate competitiveness and growth while a recent share rally lured many foreign investors back to Japan.
Loeb, who owns around 7 percent of Sony through shares and cash-settled swaps, has called the entertainment division poorly managed. He also wanted to make it more transparent and accountable.
Sony's shares fell as much as 5.1 percent on Tuesday morning after the announcement but market players said the drama may not be over.
“I think the chances that Third Point will sell its shares are slim,” said Makoto Kikuchi, chief executive of Myojo Asset Management, adding the hedge fund may yet appeal directly to Sony shareholders, which include a large number of foreign investors.
Sony's promise to improve transparency in its entertainment business includes plans to disclose in its earnings releases from next quarter revenue figures for certain categories in its pictures and music segments.
Sony's board had been expected to reject Loeb's proposals, the Nikkei newspaper said last week, with directors arguing Sony could compete better by maintaining ties with the entertainment arm of the business.
Sony Chief Financial Officer Masaru Kato subsequently assured a quarterly earnings briefing last Thursday, however, that the company was still discussing Loeb's proposal and would make a decision after thorough consideration.
Sony said the board had since met again and rejected the proposal in a unanimous vote, arguing that its decades-old vision of wringing synergies from integrating its content and electronics divisions was intact and gaining importance. Many analysts and investors over the years have questioned the potential of that strategy.
The company has long been a pillar of Japan Inc and a pioneer in the electronics industry. But it has lost market share - and its innovative edge - to aggressive foreign rivals such as South Korea's Samsung Electronics and Apple as they churn out blockbuster products.
Loeb is credited with forcing change at Yahoo, where he waged an aggressive campaign to upend its previous management in 2011 and 2012, accusing then-CEO Scott Thompson of padding his resume with a non-existent computer science degree. Thompson was out within weeks.
Despite Tuesday's share price drop, Sony's shares have more than doubled so far this year, buoyed by Third Point's suggestions as well as Abe's potent mix of monetary and fiscal stimulus, which has fuelled a rise of about 35 percent in Tokyo's benchmark Nikkei average. - Reuters