September 17, 2019 / 4:17 PM / a month ago

Breakingviews - Sony’s activist defence is only semi-convincing

An employee takes a photo on a new Sony Xperia 10 Plus in this posed photograph at a pre-launch event at the Sony offices in London, Britain February 14, 2019. Picture taken February 14, 2019.

LONDON (Reuters Breakingviews) - Sony’s “Be Moved” slogan does not apply when an activist investor is applying pressure. The Japanese entertainment conglomerate on Tuesday rejected a proposal from Dan Loeb’s Third Point to spin off its chips business and offload its financial unit. Its defence is only partly convincing.

The pushy hedge fund firm’s second run at Sony emerged in early April. Its letter in June – some six years after it last confronted the company, unsuccessfully – mostly lauded the studio, video gaming and music operations. It made a reasonable case, however, that the broader portfolio of holdings could do with some tidying up.

The ideas seemed to receive a warm reception from investors. Sony shares are up 40%, outpacing Japan’s benchmark Nikkei 225 Index, since right around the time Loeb arrived on the scene. It helped that the $75 billion company decided last month to sell its 5% stake in Olympus, the medical equipment and camera maker, suggesting that boss Kenichiro Yoshida might be open to more restructuring.

Instead, he is arguing that image sensors, mostly used in smartphones but which will have wider applications in self-driving cars and other technology, are an essential part of Sony’s future. It’s not obvious why it makes sense to keep the capital-intensive unit housed with “Spider-Man” films and PlayStation consoles. Nor is it clear whether it will ever be properly valued alongside those other businesses. It’s also true, however, that now may not be the best time to separate the division. For one thing, operating profit in the semiconductor division surged 70% last quarter.

Less persuasive is Sony’s decision to hang onto more than half of $9.5 billion life insurance peddler Sony Financial. Trying to improve the outfit, as Yoshida says he aims to do, will come at a cost, including in terms of management distraction. 

Sony may get some credit for being less stubborn than big portions of Japan Inc. In truth, though, its response to Loeb outlines routine steps, such as continuously reviewing its portfolio, that any sensible company ought to be doing. In terms of creating value, it sometimes pays to be moved.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below