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Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

Sony Declines Loeb's Proposal to Spin Off Semiconductor Business

Segments work better together, company says, disagreeing with activist

Shares of entertainment giant Sony Corp. (NYSE:SNE) gained slightly Tuesday after the company declined activist investor Dan Loeb’s proposal to break into multiple entities.

Sony’s board unanimously agreed to keep its semiconductor business, rebuffing Loeb’s call last June to spin it off. Not separating the unit, which generates 18% of revenue and commands more than half of image sensor market share, would drive better “corporate value over the long term” than Loeb’s plan, the company said in a letter to shareholders Tuesday.

“This is based on the fact that the I&SS business is a crucial growth driver for Sony that is expected to create even more value going forward through its close collaboration with the other businesses and personnel within the Sony Group,” the company wrote.

Sony expects its semiconductors, used frequently in smartphone applications, to also be used in growth markets such as the Internet of Things and autonomous driving. And separated companies could cost more to run separately than together due to higher licensing fees, tax inefficiencies, and other reasons, the company said.

Loeb had proposed in June that Sony’s complex portfolio structure impeded investors from making forecasts for the company, causing depressed valuation. The company operates gaming, music and picture segments in addition to its semiconductor business. Loeb noted in a presentation that Sony traded at 11 times earnings, despite growing the profitability of its main segments by five times over the past five years.

Sony shares had gained about 65% in the three years before news broke in April that his hedge fund, New York-based Third Point, was building a stake. They have climbed 40% since then. The stock closed at $59.94 Tuesday, up 0.017% for the day.

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Sony refused an additional Loeb proposal to sell its stakes in Sony Financial Holdings (TSE:8729), M3 Inc. (TSE:2413) and Spotify (NYSE:SPOT). It agreed to one of his suggestions, to divest its 5.03% stake in Olympus Corp., on Aug. 30.

Loeb’s Third Point has a $1.5 billion stake in Sony, owning 6% of its shares. The firm, which describes itself as “event-driven” and “value-oriented,” also has activist stakes in Ray-Ban maker EssilorLuxottica (XPAR:EL), Campbell Soup (NYSE:CPB) and Nestle (NSRGY), among others. His Third Point Offshore Fund returned 15.4% for the year through August, versus the 18.3% total return of the S&P 500.

See Loeb's portfolio here.

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About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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