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MarketScreener Homepage  >  Equities  >  Tokyo  >  Sony Corporation    6758   JP3435000009

SONY CORPORATION

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Sony Rejects Investor's Call to Spin Off Profitable Unit -- WSJ

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09/18/2019 | 02:48am EDT

By Takashi Mochizuki

Sony Corp. turned down a request by activist investor Daniel Loeb for a spinoff of the profitable Sony unit that supplies parts for iPhone cameras, saying that keeping the business in-house would preserve synergies.

The move, backed by a unanimous vote of Sony's board, marks the clearest statement yet by Sony Chief Executive Kenichiro Yoshida that he intends to preserve the conglomerate model in which Sony embraces a range of businesses including Hollywood movies, PlayStation videogames, Walkman portable music players, life insurance and electronic parts.

In a letter to shareholders on Tuesday, Mr. Yoshida said he appreciated Mr. Loeb's suggestions but concluded that keeping the camera-parts unit "is the best strategy for enhancing Sony's corporate value over the long term."

Third Point LLC, a New York-based fund run by Mr. Loeb, published an open letter to Sony in June saying the parts of the company's business portfolio lacked an obvious connection to each other. The hedge fund said this pushed down the share price because it was too hard for investors to grasp the full picture of Sony's business, generating a conglomerate discount.

The biggest change sought by Mr. Loeb was a spinoff of the unit that supplies image sensors used in smartphone cameras to phone makers including Apple Inc. That unit recorded operating profit of Yen49.5 billion ($458 million) in the April-June quarter, accounting for about one-fifth of Sony's total.

Sony said in the letter that the sensing technology was critical to serving creators of entertainment content such as games, music and movies. It said its edge in image sensors drew on its expertise in making cameras, PlayStation videogame machines and other products.

While the image sensors are a kind of semiconductor, Sony said the word could invite misunderstanding because, unlike other semiconductors, manufacturing the sensors doesn't require the same level of regular spending to upgrade equipment.

This summer, Sony changed the name of the unit to "Imaging & Sensing Solutions" from "Semiconductors."

Mr. Yoshida's letter said a spinoff would generate costs and divert management attention.

Sony officials have also said the unit benefits from being part of a larger technology company since it can pull in extra talent when needed from departments that are less busy.

Sony also rejected Third Point's suggestion that it sell its majority stake in a financial-services unit in Japan that includes a bank and an insurance company. Sony said the group brought in stable profits and benefited from the Sony brand name in attracting customers.

While it is common for Japanese conglomerates to reject calls for a breakup, Sony went a step further than most by bringing in outside advisers to review the idea and publishing a CEO letter with specific rebuttals to Mr. Loeb's proposals. A Sony spokesman said this showed management welcomed and valued input from investors.

A representative of Third Point declined to comment.

Ace Research Institute analyst Hideki Yasuda said he thought Sony had a point about synergies, because the sensors could help augment future PlayStation products in virtual reality and other areas. However, he said Sony might reconsider if technology changes and the sensor unit has to make big investments. "That could be a huge financial burden to other units of Sony," Mr. Yasuda said.

Ahead of the letter, Sony sold its stake in medical-equipment maker Olympus Corp. in August, generating Yen80 billion ($740 million). Mr. Loeb had also sought this action, and Mr. Yoshida mentioned it in his letter, but the Sony spokesman said the share sale wasn't prompted by Mr. Loeb's request because the company regularly reviews its outside shareholdings.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
APPLE INC. 1.34% 243.18 Delayed Quote.52.47%
OLYMPUS CORPORATION 1.24% 1469 End-of-day quote.-55.48%
SONY CORPORATION 0.17% 6460 End-of-day quote.25.49%
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Financials (JPY)
Sales 2020 8 667 B
EBIT 2020 848 B
Net income 2020 543 B
Finance 2020 1 720 B
Yield 2020 0,63%
P/E ratio 2020 14,3x
P/E ratio 2021 13,2x
EV / Sales2020 0,70x
EV / Sales2021 0,62x
Capitalization 7 819 B
Technical analysis trends SONY CORPORATION
Short TermMid-TermLong Term
TrendsNeutralBullishBullish
Income Statement Evolution
Consensus
Sell
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Mean consensus BUY
Number of Analysts 22
Average target price 7 687,62  JPY
Last Close Price 6 355,00  JPY
Spread / Highest target 35,3%
Spread / Average Target 21,0%
Spread / Lowest Target -8,73%
EPS Revisions
Managers
NameTitle
Kenichiro Yoshida President, Chief Executive Officer & Director
Shuzo Sumi Chairman
Hiroki Totoki Chief Financial Officer & Director
Toru Katsumoto Senior Managing Executive Officer, Head-R&D
Makoto Toyoda Chief Information Officer & Executive Officer
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