Sony Corp. has rejected billionaire Daniel Loeb’s call to sell a portion of its entertainment business, saying 100 percent ownership of the film and music units is crucial to the company’s success.
The board decision was unanimous, Sony said Tuesday in an emailed statement. The company will begin providing additional disclosure about the entertainment business starting with the current second quarter.
Chief Executive Officer Kazuo Hirai is backing a unified business plan spanning the production of TVs and mobile devices that can combine with music and film content to drive earnings after years of losses from electronics.
Loeb’s Third Point LLC built a 6.9 percent stake in Sony and pushed the board to sell as much as 20 percent of its entertainment assets in an initial public offering.
“In the last 15 to 20 years that they’ve owned those businesses, they’ve yet to show any meaningful synergy with electronics,” said Daniel Ernst, an analyst at Hudson Square Research in New York, who has a buy rating on the shares. “The beauty of the entertainment spin plan was that it wouldn’t stop them from keeping trying.”
“Sony’s entertainment businesses are critical to our corporate strategy and will be important drivers of growth,” Hirai said in the statement. “I am firmly committed to assuring their growth, to improving their profitability, and to aggressively leveraging their collaboration with our electronics and service businesses.”
The new disclosures will include quarterly revenue figures for unspecified categories within the movie and music units and other metrics that will help investors calculate adjusted earnings before items, Hirai said.
Loeb’s Third Point LLC hedge fund said it was “disappointed” with Sony’s decision and intends to “explore further options to create value for Sony shareholders.”
Third Point said Sony management should communicate more specific plans for improving the results of its entertainment units.
“Sony has clearly recognized the performance issues we identified,” New York-based Third Point said in the emailed statement. “A renewed focus on profitability and better margins should reduce bureaucracy and thus free up resources.”
Loeb, known for his aggressive style in stoking change at target firms, had argued the spinoff would make the entertainment unit’s managers more accountable and help improve profitability.
“There was no surprise in the letter, which was in line with Sony’s previous comments,” said Hiroshi Sakai, chief economist with SMBC Friend Research Center. “But I don’t think Third Point will give up its bid now. It is likely to continue its strategy by calling on other investors to join its bid.”
Sony last week raised its full-year sales forecast as a weaker yen boosted the value of exports, as the company gets almost 70 percent of revenue from overseas. The improved outlook came even as it cut expected shipments of TVs, digital cameras and personal computers as it tries to match Samsung Electronics Co.
In dollar terms, sales for Sony’s pictures unit fell 16 percent in the June quarter. After topping the U.S. box office last year, Sony’s films have fallen to sixth in 2013 after “White House Down” and Will Smith’s “After Earth” flopped.
The box-office duds prompted Loeb to devote more than half of Third Point’s quarterly investor newsletter, issued last week, to Sony, as he slammed the flops and “high salaries for underperforming senior executives.” He said Sony’s entertainment profit margins lag behind its peers, and the unit needs closer supervision amid a lack of franchises and bloated costs.
A combined entertainment unit, including music and pictures, would be the second-biggest source of earnings based on the company’s April-June quarter results. Sony’s largest business by earnings is financial services.
Hirai is preparing to release the PlayStation 4 console this year to drive game earnings as consumers migrate to playing games on mobile devices from Samsung and Apple Inc.
Loeb praised Sony’s rollout of the PS4, which is due to be released for the Christmas shopping season.