Sony Rejects Breakup Plans From Activist Investor Daniel Loeb

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Sony CEO Kenichiro Yoshida

"Many of the world's leading entertainment companies are now seeking to acquire technology, while many technology companies are moving into the entertainment space. The clear trend we see is for entertainment businesses of today to be directly connected to technology," Sony said in an eight-page letter dismissing Loeb's suggestion it should spin off its successful semiconductor business.

Sony Corp. dismissed the proposal from Daniel Loeb's Third Point hedge fund to spin out its successful semiconductor business into a separate company in an eight-page letter to shareholders on Tuesday.

CEO Kenichiro Yoshida pointed to two consecutive years of record profits at the entertainment to electronics Japanese conglomerate as evidence that Sony's corporate strategy of diversified businesses was working.

Yoshida wrote that Sony's board agreed with Loeb's description of its Imaging and Sensor Solutions division as a "Japanese crown jewel and technology champion" but that it would continue to be an integral part of the group. The division sells image sensors for products such as smartphones, including the iPhone, and is the global leader in the sector.

"We envisage AI and sensing being used across a wide range of applications such as IoT [the Internet of Things], autonomous driving, games and advanced medicine, and believe there is a potential for image sensors to evolve from the hardware they are today to a solutions and platforms business," said Yoshida.

The letter argued that the media and technology industries are getting closer together. "Many of the world’s leading entertainment companies are now seeking to acquire technology, while many technology companies are moving into the entertainment space. The clear trend we see is for entertainment businesses of today to be directly connected to technology."

The letter was titled "Enhancing Corporate Value Over the Long Term as a Creative Entertainment Company With a Solid Foundation of Technology" and reinforced Yoshida's previous statements that the movie and TV business was also a central pillar of Sony's business.

Loeb previously built a stake in Sony in 2013, at that time urging the company to sell off its pictures division to enhance value. This year, he built up a $1.5 billion position and in June effectively touted the opposite strategy: dropping the tech divisions and putting entertainment at the heart of the company.

The activist investor also urged Sony to dispose of its financial services company, as well as its stakes in Spotify and Olympus. Sony did announce the sale of its 5 percent stake in medical equipment and camera-maker Olympus at the end of August but denied that was related to Loeb's proposal. The shareholding is worth approximately $750 million (¥80 billion) and is being sold back to Olympus.

Sony announced at the beginning of September that it had bought back around $925 million of its own shares by the end of August.

Sony stock is up around 22 percent since Third Point issued its proposal in mid-June and up around 45 percent over the last six months. Although it is not clear at what price the fund purchased the stock, it looks set to profit again through Sony, despite the company's rejection of its proposals.