Activist-investor-billionaire Dan Loeb is pressuring Sony to make part of its entertainment business public, a proposal Sony will discuss with its board.
Loeb’s company Third Point LLC. currently owns 6 percent of Sony’s stock and Loeb himself has invested $1.1 billion in the company, making him Sony’s largest investor. Loeb believes that an initial public offering of Sony’s music and movie division would unlock the entertainment arm’s value, while simultaneously freeing up money to reboot Sony’s electronics division. Loeb’s proposal called for making up to 20 percent of the entertainment division public.
Sony may be known for its electronics, but its entertainment and insurance arms bring in almost all of its profits. Sony Chief Executive Officer Kazuo Hirai said that Sony’s “top priority” is to “restore the electronics business.” The electronic arm of Sony is actually the company’s weak point, a change from its important part in the company’s early success. Sales of traditional electronics like TVs, digital cameras, and DVD players have slumped, and in response, Sony has shifted focus to smartphone production, an arena currently dominated by Samsung and Apple (NASDAQ:AAPL).
Sales of the PlayStation Vita handheld device were lower than expected, and Sony predicts that an advertising campaign for the PlayStation 4 will cost more than previously estimated. But Hirai has plans in the works to link Sony’s Xperia smartphones, PlayStation gaming devices, and Bravia TVs to Sony music and movies, which he hopes can bring the electronics division back to its former glory.
Sony isn’t unfamiliar with IPOs. In 2007 the banking and insurance division had an IPO that was not well-received by analysts, many of whom urged the company to undo the decision because the financial services unit brings in the most profit of all Sony’s businesses, and undoing the IPO would result in tax benefits for the entire company.
Loeb believes that the IPO would allow the company to give more disciplined focus to its entertainment group. The Tokyo-based company has faced nine straight annual losses on TV production, which it has made up for with its film and financial-services earnings. Sony’s movie studio, which topped U.S. box offices last year, makes the Spiderman movies. Sony’s television projects include AMC Networks Inc.‘s (NASDAQ:AMCX) popular Breaking Bad series. Sony’s music divisions are home to Bruce Springsteen and Alicia Keys, and own the rights to music from Michael Jackson’s estate, including Jackson’s own music and a chunk of the Beatles’ discography.
Sony owns one of the largest collections of television, movie, and music businesses. Making part of its entertainment division public would bring Sony revenue to focus on improving its electronics division.
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