By Patrick Thomas
Daniel Loeb's activist hedge fund has Sony Corp. back in its sights and is pushing the Japanese electronics and entertainment company to spin off its semiconductor business.
Third Point LLC said in a letter to investors Thursday that Sony's stock is undervalued and that the company's portfolio needs to be less complex. Third Point said it has invested $1.5 billion in building its position in Sony.
The hedge fund said Sony should also consider selling its stakes in insurer Sony Financial Holdings Inc., health-care services firm M3 Inc., manufacturer Olympus Corp. and streaming music service Spotify Technology SA.
"We believe the proceeds of these divested stakes should be invested in long-term growth or capital return to shareholders," Third Point said in its letter.
Mr. Loeb's push marks the second time in six years his $15 billion hedge fund has targeted the company. He tried to rally shareholder support for a spinoff of the company's movie and music assets in 2013.
Third Point had about a 7% stake in Sony in 2013, but the company rejected its proposal and Third Point sold its stake in 2014.
But in a turn from its prior position, Third Point said Sony's gaming, music and pictures segments would become its core following a spinoff of its semiconductor unit.
Third Point said in its letter that its semiconductor division, a business that includes image sensors for smartphones, should be a stand-alone, Japan-listed company and has the potential to be a $35 billion unit within five years.
"Sony's legacy electronics assets are no longer the drag on profitability that they were six years ago and will be a meaningful cash flow contributor to New Sony," the hedge fund said in the letter. "We first invested in Sony in 2013 because we believed it was inexpensive due to inadequate investor disclosure, excessive debt, an overly complex corporate structure, and consistent losses in its consumer electronics segment."
Third Point praised Sony's Hollywood studio, saying Sony Pictures remains one of the few independent film studio franchises not owned by a major telecom or media distribution company, such as Comcast Corp., AT&T Inc. and Walt Disney Co.
A representative of Sony declined to comment.
Sony said last month it would spend Yen200 billion ($1.85 billion) to buy back its stock during the current fiscal year, which ends March 31. And while Third Point is pushing for a breakup, Sony executives said last month they are looking at ways of creating stronger links within its business, especially content, intellectual property and direct-to-consumer services.
Sales of Sony's PlayStation consoles, which have been a key sales driver for more than two decades, have slowed in the past six months.
The company also said last month it could join with longtime console system rival Microsoft Corp. on cloud and game-streaming technology.
Sony's shares trading in Tokyo are down 3% over the past year, while its U.S.-traded shares have fallen 0.3% over the past 12 months.
Write to Patrick Thomas at Patrick.Thomas@wsj.com