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Sony Shares Rise as Company Considers Spinoff Proposal

Sony Building Tokyo P
The Sony Building in Tokyo.

UPDATED: Daniel Loeb, whose Third Point fund holds a 6.5 percent stake in the conglomerate, is proposing it sell off 20 percent of its entertainment holdings.

Shares of Sony Corp. jumped 10 percent on Tuesday, suggesting that Wall Street is taking seriously a proposal from a large shareholder that would have the conglomerate spin off a portion of its entertainment assets.

Daniel Loeb, whose Third Point fund holds a 6.5 percent stake in Sony, wants the company to sell off up to 20 percent of its entertainment holdings, including movie and music assets, in order to focus on its electronics business and create a new stock for the media businesses.

The New York Times said that Loeb flew to Tokyo to hand deliver a letter to Sony CEO Hazuo Kirai that outlined his proposals. He also indicated he'd consider a seat on Sony's board of directors.

For years, chatter in Hollywood has centered on Sony possibly selling off its film and television studio. But a Sony rep denied that any part of the company's entertainment holdings is for sale.

Shares of Sony closed $1.85 higher on Tuesday to $20.74, setting a 52-week high.  Sony stock, though, has severely lagged behind that of its peers over the course of several years. In two years, Sony shares are down 27 percent while Disney and News Corp. shares, for example, are up 67 percent and 89 percent, respectively.

In light of the revelation of Loeb's letter on Tuesday, Brian Wieser of Pivotal Research Group reiterated his notion that CBS should consider purchasing Sony Pictures Entertainment.

"Separation from Sony would undoubtedly empower SPE to grow and become more profitable," Wieser wrote Tuesday in a research note titled, "Sony Pictures' Value to CBS to Become Clearer?"

"SPE's TV production business includes significant on-air and library content," wrote Wieser, "including Community (on NBC), Breaking Bad (on AMC) as well as Wheel of Fortune and Jeopardy (both in syndication). Their library includes 50,000 episodes from 275 television series, including I Dream of Jeannie, Bewitched and All in the Family. SPE also retains signficant rights to the Seinfeld library."

The Times obtained a copy of Loeb's letter, a portion of which reads:

Sony Entertainment is one of the most prestigious entertainment businesses in the world, with coveted assets in television and motion picture production, an iconic library of movies and television programming, the leading music publishing business, and an exciting array of international cable networks. By our estimates, these assets today comprise over 40% of Sony's enterprise value. While the Entertainment businesses are top performers within Sony, profit margins fall short when benchmarked versus their US-listed competitors despite superior scale and leading market positions. We believe the underperformance would be remedied by a more disciplined management approach to Sony Entertainment. If a minority stake of Sony Entertainment were listed, it could be used to reward management through the growth of an equity security specifically tied to a company they control.