|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
Sony's Management Should Pay Attention to Dan Loeb
Posted by: Federico Zaldua (IP Logged)
Date: September 20, 2013 01:24PM
As an investor, its tough not to agree with Daniel Loeb. For years, the activist investor has been creating value for the investors of his fund, Third Point LLC, and for all the shareholders of the companies where he held a long position. This was the case for Yahoo (YHOO), a position he already closed at a huge profit: Third Point bough Yahoo shares at various prices between $11 and $15 and sold its position at around $29. Now, Loeb is proposing to unlock value from Sony (SNE), the Japanese conglomerate. Even when Sony's shares have raised by more than 90% year-to-date, I think there is still huge upside potential for the company. Let's take a look!
A Value-Enhancing Proposal
Daniel Loeb, who owns about 7% of Sony's shares, has proposed to unlock value from the company through selling up to 20% of its entertainment business, which Third Point valued at about $10 billion. According to Loeb, multiple objectives could be achieved through selling a part (if not all) of Sony's entertainment division. For starters, through the sale, Sony would be able to finance the restructuring of its electronics operations. On the other hand, according to the activist investor, Sony's shareholders would get a much better valuation for the entertainment part of the business which would be currently undervalued because investors are bundling it together with the under-performing electronics division.
Sony's new CEO, Mr. Hirai, who is cutting costs at the troubled electronics side of the business, has explicitly refused to take Loeb's proposal into practice. Management's plan to cut costs at every division is a step into the right direction, but Loeb's point is undeniable. Sony's huge diversification across businesses does not make much sense at all. Spinning off the entertainment division would be the first step out of many. For example, Sony also owns 60% of a highly profitable financial company, Sony Financial Holdings (OTH:SNYFY), which is involved into banking and the life insurance business. This completely a independent business could be either entirely sold or, better yet, spin off to Sony's shareholders.
Selling TVs, making movies and writing insurance contracts are very different businesses and wrapping them together doesn’t look like a great idea, above all, when one division's under-performance (electronics) out-shines the valuation of the entire business.
Sony's management is being successful at turning around its troubled electronics division. As a matter of fact, the electronics segment turned profitable on a turn to profit for smartphones and TVs. That said, investors should be heard when there is a clear case to extract value. Through a spin-off of the movie and music business, the management could focus on its core and let owners get a better price for their assets. Sony trades at just 80% of its book value and 3.6 times EV/EBITDA, which is a fraction of the multiple the entertainment business could sell for and its also very far from the multiple Sony Financial Holdings is currently trading at (200% of the company's book value).
Bottom line, I am sure there is a clear investment case for Sony. The company's board should not interfere with investors' best interests. Let's hope they do not. Apparently, not only Loeb thinks management will finally recede. Other investors such as Charles Brandes and Mario Gabelli are also long on the name.
Re Sony s Management Should Pay Attention to Dan Loeb
Posted by: Cornelius Chan (IP Logged)
Date: September 20, 2013 07:04PM
Sony's huge diversification across businesses does not make much sense at all.
Unless you are a conglomerate. LOL But I can understand Wall Street's urge desire to see spin-off's that almost guarantee immediate paper profits. I lump Loeb in with Wall Street btw.
Why would Sony get rid of its most profitable division? Similar to Fraser & Neave selling its Tiger Beer brand to a Thai company earlier this year. Now Fraser & Neave is stuck with a bunch of soft drinks and "losing" those millions every month that Tiger used to bring in. Just don't understand...
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.