Sony Corp.’s first share sale in 26 years is fueling speculation the company may buy full control of Sony Financial Holdings Inc., a move that could save taxes and help the parent meet performance targets.
The company said on Tuesday it plans to raise about ¥440 billion ($3.6 billion) by selling common stock and convertible bonds. The announcement prompted a three-day, 11 percent jump in the life insurance unit’s stock, while Sony said proceeds from the share sale will fund an increase in chip production.
Sony, which owns 60 percent of the insurance business, could save billions of dollars in taxes by taking complete control of the unit, according to Macquarie Group Ltd. Booking all of the net income generated by Sony Financial, the group’s most profitable business, would also help reach the 10 percent return-on-equity target Chief Executive Officer Kazuo Hirai set for fiscal 2017.
“The fundraising amount is just enough to get that last 40 percent of Sony Financial, which may become out of reach later,” said Masahiko Ishino, an analyst at Tokai Tokyo Securities. “The company’s priority is now semiconductors, but it’s not yet clear how they will choose to spend that money. Either way, it’s a positive for shareholders.”
Sony rose 1.2 percent to close at ¥3,515 in Tokyo on Thursday, bringing this year’s gain to 42 percent. Sony Financial gained 3.9 percent as of the close, lifting the shares to the highest in seven years and capping the best three-day run since 2013.
The unit contributed ¥193.3 billion to the parent’s operating profit in the year ended March 31, compared with Sony’s ¥220.4 billion loss in the smartphone business. A buyout would give Sony full access to the financial division’s cash.
By filing a consolidated tax statement, Sony could reduce its domestic levies, said Damian Thong, a Tokyo-based analyst at Macquarie. The full extent of savings would hinge on negotiations with Japanese tax authorities, he said.
The remaining stake in the finance business had a market value of about ¥401 billion as of Thursday. Sony, which plans ¥991 billion in capital and research spending this fiscal year, also had ¥1.9 trillion of cash, equivalents and short term investments as of March 31, data compiled by Bloomberg show.
“Sony is addressing more immediate pressing needs in terms of investment,” said Thong, who recommends buying Sony and doesn’t have a rating on the finance unit. “While there are potential merits from tax efficiency perspective, it feels like it would be a strategic diversion.”
Hirai has said that after many years of losses and painful restructuring, this fiscal year will mark the beginning of Sony’s growth phase. He pledged “aggressive investments” into growth areas, including image sensors for smartphone cameras, video game network services and virtual reality gear.
The company is quadrupling spending on semiconductors to ¥290 billion this year to meet surging demand for the sensors used in Apple Inc. and Samsung Electronics Co. smartphones. Sony expects sales in the business to climb as much as 62 percent to ¥1.5 trillion in three years.
Sony spokesman Yasuhiro Okada said the company “does not have plan to change its shareholding in Sony Financial Holdings.” Sony Financial Holdings spokeswoman Kazue Kurokawa declined to comment.
Sony’s operating profit will reach ¥500 billion in the year ending March 2018, the company has forecast in its mid-term plan. That’s the highest since ¥520 billion in 1998.
“Sony is in the right place to start investing into growth,” said Yoshinori Ogawa, market strategist at Okasan Securities Co. “Taking full control of the finance unit is a positive and would increase its contribution to profit, but it doesn’t seem like the time for that is now.”