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Business Sony - Make Believe

Published on August 29th, 2013 | by The GC Team

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Sony says “no” to spinoff of entertainment business

Corporation sends letter to Third Point’s Loeb

Sony Corporation has sent a letter to Third Point LLC following a unanimous vote of the company’s Board of Directors not to spinoff its entertainment division.

Third Point CEO Daniel Loeb, a major shareholder in Sony, has been pressing the Japanese firm to turn its entertainment business into a separately listed company and sell off 15-20% to investors. In one of a series of letters to Sony president Kazuo Hirai, he suggested that the company should use the money it would raise to strengthen its unprofitable consumer electronics operations.

Sony’s letter to Loeb states that the Board and management team strongly believe that continuing to own 100% of the Company’s entertainment businesses is fundamental to Sony’s success, and that a rights or public offering is not consistent with the Company’s strategy for achieving sustained growth in profitability and shareholder value. The letter sets out a number of reasons, including:

“Demand for content is increasing its value in a dynamic industry environment characterized by emerging distribution platforms and the proliferation of both powerful mobile devices and access to broadband. Sony believes its entertainment businesses will increasingly benefit from these trends, and the Company’s shareholders will benefit from owning all, rather than a part, of these valuable assets

“Full control of Sony’s entertainment businesses drives internal collaboration, facilitates synergies, and allows the Company to be more nimble. Sony believes that the opportunities for collaboration among Sony’s businesses are numerous and increasing, and a rights or public offering would create the need for otherwise unnecessary and burdensome arm’s length intercompany relationships as a result of minority shareholder rights, thereby limiting Sony’s control and strategic flexibility.”

Sony also stated that its Board and management believe it has adequate capital resources to fund its business plans. “Should Sony require capital, or in the event of unanticipated events, the Company’s priority would be to raise capital without selling a portion of an asset fundamental to the growth strategy, and without unnecessarily burdening Sony’s ability to execute its business strategy for both entertainment and electronics.”

Sony expects to begin providing additional disclosures regarding its entertainment businesses for the second quarter of the current fiscal year to help market participants better analyze performance of these businesses.

“We are encouraged by our progress as we continue to execute on our One Sony strategy,” said Kazuo Hirai, President and CEO of Sony. “We have made many changes during my tenure as CEO, and we are confident that we are on the right path. Sony’s entertainment businesses are critical to our corporate strategy and will be important drivers of growth, and I am firmly committed to assuring their growth, to improving their profitability, and to aggressively leveraging their collaboration with our electronics and service businesses. We are determined to pursue sustained growth in profitability and shareholder value, so that we can meet and exceed the expectations of all of our stakeholders.”

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