The activist shareholder's history with companies like Yahoo give clues to his next moves, including increasingly nasty letters and a team of dedicated investigators.
Sony on Thursday brought on board former Fox Filmed Entertainment chair Tom Rothman to launch TriStar Productions. Rothman has a reputation for being fiscally conservative, which has caused some observers to speculate that launching TriStar with him is a move to placate activist investor Daniel Loeb, who has been badgering Sony to spin off what he calls its “bloated” entertainment business.
If Rothman focuses on making four to six inexpensive movies per year, Loeb, whose Third Point hedge fund owns about 7 percent of Sony and is its largest stakeholder, might not gripe so much to Sony CEO Kaz Hirai about Sony Pictures bombs like White House Down and After Earth, the thinking goes. But Loeb, who parlayed $3 million he collected from family and friends 18 years ago into a $13 billion hedge fund, isn’t normally satisfied with smallish moves like reviving the TriStar label, so he’ll likely stick around until he figures he’s made a hefty enough profit to sell. With Yahoo, it took him about a year before he cashed out the majority of his holdings for about a $610 million pretax profit, whereas he only began publicly agitating Sony to spin off its entertainment assets about 10 weeks ago.
STORY: Activist Investor Daniel Loeb Blasts Sony's Summer Flops as Latter-Day 'Ishtar' and 'Waterworld'
Loeb, as is his usual modus operandi, has already volunteered his services or that of his allies to serve on Sony’s board of directors. He also might recommend specific layoffs, restructuring or other cost-saving measures. Beyond those obvious moves, though, he’s not saying what tactics he’ll employ in order to accomplish his goal of having his way with Sony, and he declined a request for an interview.
Still, based on his prior behavior as an activist shareholder, here is what Sony might be in for in the coming weeks, months or perhaps even years.
1. More Missives
The colorful letters for which Loeb
is famous could get increasingly harsh. (Some early examples of his missives live on a dedicated Tumblr
, Dan Loeb's
Letters to CEOs.) They’ll also likely get more entertaining, at least for outsiders. Sony’s board no doubt is aware of this already, as Loeb’s
first letter asking for a spinoff
was rather polite and even complimentary. In subsequent writings, though, he took off the gloves. “Under Mr. Lynton
and Ms. Pascal’s leadership, Entertainment’s culture is characterized by a complete lack of accountability and poor financial controls,” he wrote this week. Referencing After Earth
and White House Down
, he added that it is “perplexing” that Hirai
“does not worry about a division that has just released 2013’s versions of Waterworld
2. Deep Research
Loeb and his staff can be counted on to keep up the relentless investigation into Sony's business and highlight indiscretions others on Wall Street might have missed. An example is Yahoo, where Loeb investigated the curriculum vitae of top executives and found the discrepancies in then-CEO Scott Thompson’s resume that caused him to resign. A pet peeve of Loeb’s is also nepotism, and nothing causes him to whip out his acerbic pen more quickly. Once, when he found a company he had invested in (InterCept) had employed the CEO’s daughter and her husband, he called the husband on his cell phone and disclosed their conversation in a subsequent letter. “I identified myself as a shareholder interested in learning about the core product lines, to which he replied that he could not speak as he was on the golf course," Loeb wrote. "I was not sure whether it was his relation with his father-in-law or the $238,776 salary that affords him the opportunity to work on his golf game during business hours.” Another time, he called two great grandsons of a co-founder of Potlatch Corp. members of "The Lucky Sperm Club."
3. New Executive Titles
Loeb might invent new titles for Sony executives. Sorting through his previous letters to a variety of companies, one might notice certain turns of phrases are repeated. One is “tooling around,” a term he uses to describe executives who spend company money to travel extensively by jet or even car. Loeb also has a penchant for discovering new acronyms and initialisms. Examples: he accused InterCept of a “Good ol’ boy” attitude, which he shortened to GOB. On another occasion, he retitled the Potlatch CEO the “CVD,” or “chief value destroyer.”
4. Private Time Won't Be Private
Loeb could use an executive’s outside activities against him or her. If an executive is hitting the links when he should be working, Loeb will pounce. But he’s also far less obvious than that. For example, when he learned that the CEO of Star Gas had a Cornell University scholarship named for him, he wrote in a letter to the CEO: “One can only pity the poor student who suffers the indignity of attaching your name to his academic record.” And when Loeb discovered that a board member at InterCept was a college teacher, he used words like "flunking" and "expel" in letters asking for his resignation. The director, he wrote, "seems to be a living example of the old adage that 'those who can't do teach' ..."
5. The Battle Will Be Public
He might not speak on the record often, but Loeb can figure out creative ways to use the press to his advantage. When he becomes a significant shareholder in a company, his letters to management are made public and journalists routinely use them as a source for news. Proxy battles also make for interesting copy. But some observers speculate that Loeb’s strategy for generating news is sometimes well hidden. After making sure Yahoo hired Google executive Marissa Mayer as its new CEO, for example, he allegedly encouraged her to carry out a string of acquisitions in order to keep the Internet company top of mind among reporters. Writing for USA Today, Michael Wolff put it like this: “Loeb’s strategy was, as activist investing often is, a press strategy. By hiring a CEO from Google, then bidding for almost any company on the market -- 19 deals in a year -- Loeb insured that Yahoo was providing continuous excitement for the tech press.”