Market Overview

A Closer Look At Dan Loeb's Letter Urging Sony To Reorganize

A Closer Look At Dan Loeb's Letter Urging Sony To Reorganize

Activist investor and major Sony Corp (NYSE:SNE) shareholder Third Point released a 102-page presentation titled "A Stronger Sony" Thursday. 

The fund, managed by Dan Loeb, argued for the Japan-based company to split up its businesses to better position itself for growth.

'One-Of-A-Kind Company'

Sony is a "one-of-a-kind" company, with exposure to gaming (43% of profits), semiconductors (20%), music (16%) and pictures/movies (8%), the presentation said. Yet the company's structure "obscures" its assets, and shares are trading at a 50% discount to Third Point's estimated intrinsic value, according to the hedge fund. 

Shares are trading at eight times EV/EBIT, which is a "deep discount" to peers with similar structures who trade at 12 to 22 times, Third Point said. 

The Street isn't giving Sony sufficient credit for growing profits under CEO Kenichiro Yoshida, the presentation said.

The stock continues to trade at a "depressed earnings multiple" and a notable discount to its peers across every core business, the activist investor said. 

The Hedge Fund's Recommendations

Third Point recommends Sony consider four strategic alternatives to unlock trapped value and better position the company for growth.

They are:

  • A spin-off of the semiconductor business into a new standalone entity listed on a Japanese stock exchange.
  • Positioning the "New Sony" as a global entertainment leader.
  • Considering the monetization of public equity stakes in M3, Olympus, Spotify Technology SA (NYSE: SPOT) and Sony Financial.
  • Optimizing the capital structure by expanding net leverage to a level that is consistent with global media and entertainment peers at one to two times.

Sony's stock could see "significant" upside, not only from unlocking trapped value, but by buying back its own stock at a discount to the intrinsic value, Third Point said.

Perhaps more important, Third Point's presentation said the plan will better position the company for long-term growth.

Sony shares were trading higher by 3.42% late in Friday's session. 

Related Links:

Sony Zaps Take-Two M&A Rumor; BofA Says Company Seems Pricey

This Analyst Says Sony Should 'Think About' Acquiring IMAX

Posted-In: activist investor Dan Loeb Japan third pointNews Hedge Funds Tech General Best of Benzinga


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