April 10, 2019 / 2:58 AM / 9 months ago

Breakingviews - Dan Loeb can help Sony handily sharpen its picture

An employee takes a photo on a new Sony Xperia 10 Plus in this posed photograph at a pre-launch event at the Sony offices in London, Britain February 14, 2019. Picture taken February 14, 2019. REUTERS/Simon Dawson

HONG KONG (Reuters Breakingviews) - Dan Loeb’s second appearance at Sony may be just what the Japanese conglomerate needs. The American activist’s return as an investor in the $60 billion PlayStation-maker provides a catalyst for management to split the company into a pure-play chips business and a more focused-entertainment group coveted by Apple, Amazon and Netflix – and with more resources to fight them.

The New York hedge fund manager has picked the right time to agitate for change. Third Point is raising up to $1 billion to build up a stake. Compared to six years ago, when the billionaire unsuccessfully called for a partial breakup, Sony Chief Executive Kenichiro Yoshida is today leading a revival powered by games, movies, and music. Yet investors value the conglomerate at almost 30 percent less than the sum of its parts, calculate analysts at Nomura.

Loeb could once again target Sony Pictures, which he believes has already attracted takeover interest, Reuters reported. The studio behind “Venom” could be worth $45 billion combined with Sony’s music arm, Breakingviews calculates. And on the heels of Walt Disney’s $71 billion purchase of Twenty-First Century Fox, it could prove even more irresistible in a seller’s market.

Loeb’s arrival gives Yoshida the impetus to convince his board to let him overhaul Sony’s sprawl spanning nine business. Sony is the world’s top maker of image sensor chips used in smartphone cameras, and increasingly, high-tech cars. Spinning out the fast-growing but capital intensive division would lessen Sony’s financial burden. It could be worth over $8 billion, reckons analysts at Jefferies.

That would allow Yoshida to focus on expanding an entertainment empire built on video-games that rivals across the Pacific dream about. With nearly 100 million PlayStation 4 consoles sold to date, Nomura estimates Sony’s crown-jewel business to be worth over $30 billion alone. And the company is broadening its offering of games, movies, and artists like Beyonce and Queen. 

A nimbler Sony can continue to ditch everything unrelated to its content engine. A good start would be the unprofitable smartphone unit, as well as a near-$6 billion stake in Sony Financial Holdings. The proceeds from slimming down can help Sony match the content firepower of Netflix and its ilk. In this way, Third Point may be a trailer for Sony’s more compelling narrative.


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