May 20, 2020 / 3:19 AM / 5 days ago

Breakingviews - Sony embraces its inner conglomerate

Sony Corp's new President and Chief Executive Officer Kenichiro Yoshida attends a news conference on their business plan at the company's headquarters in Tokyo, Japan May 22, 2018. REUTERS/Toru Hanai

HONG KONG (Reuters Breakingviews) - Sony is reinventing itself, sort of. The Japanese giant is buying the rest of its financial arm for $3.7 billion, while a new holding company structure clumsily attempts to reposition Sony beyond its electronic roots. At least it’s managing the sprawl, even if it that means thumbing its nose at activist Dan Loeb.

Sony’s annual corporate strategy meeting on Tuesday underscored some big changes underway at the 74-year-old company. Borrowing from Facebook’s mission to “bring the world closer together”, boss Kenichiro Yoshida wants to “get closer to people”. The company also announced it will change its name to Sony Group, which will sit atop of and oversee the different business divisions.  

In true conglomerate fashion, the company on the same day announced it will buy the remaining 35% stake it doesn’t already own in Sony Financial Holdings. There are financial benefits for the parent, which is taking advantage of SFH shares hitting their lowest level in over three years in March. Fully integrating the subsidiary could result in tax savings worth 175 billion yen ($1.6 billion) in the fiscal year to March, estimates analyst Damian Thong from Macquarie Research. More importantly, Sony will get direct access to SFH’s stable cash flows, which Yoshida says will help “hedge growing geopolitical risks”.  

Even so, the strategic rationale is a stretch. SFH’s local insurance, banking, and credit card businesses, which Yoshida refers to as a core Sony business, will sit alongside semiconductors, PlayStation consoles, and a music and movie catalogue that spans Harry Styles to “Charlie’s Angels”. Even if the company could wring out some synergies - say, granting SFH access to Sony’s artificial intelligence technologies - it’s not clear why the parent couldn’t have done so before, given it already holds a near two-thirds stake.

The transaction is also the opposite of the spinoffs and asset sales demanded by Loeb’s Third Point. Since last year the pushy hedge fund has called for Sony to separate its capital-intensive chipmaking unit, and offload its stake in SFH, among other things. That Sony is fully embracing its conglomerate status suggests Yoshida has other plans in mind.

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