Shareholder activism is a rough business.
Investors who amass large stockholdings and then demand changes are usually resisted and excoriated by the companies' managements, who do everything they can to defeat them. The resulting fights for control can often be public and ugly, with both sides seeking to dig up dirt or arguments with which to discredit the other side. In the end, either the activist shareholders or the incumbent managers emerge victorious, and the losers withdraw in bloody defeat.
One of the most famous and successful activist investors in the United States is hedge-fund manager Dan Loeb of Third Point.
Early in his career, Loeb became known for writing acid-tongued letters to managements, publicly ridiculing them for their incompetence. In recent years, Loeb's rhetoric has mellowed, but his punches have landed with even more sting. Last year, for example, after buying a big stake in the reeling Yahoo, Inc., Loeb revealed that the company's CEO had misstated his engineering credentials on his corporate biography. The CEO was soon forced out, and Loeb hired Yahoo's (YHOO)current CEO, Marissa Mayer, from Google (GOOG) to replace him. Since then, Yahoo's stock has almost doubled.
And now Loeb has taken on a much bigger and more complicated target: The Japanese electronics giant Sony (SNE).
Loeb's Third Point is now Sony's biggest shareholder, with a 6.5% stake.
Last weekend, Loeb flew to Japan and hand-delivered a polite letter to the company in which he urged that Sony spin off its "Entertainment" division (movies and music) and its financial services division (insurance) and focus on its electronics business. A spokesman for Sony responded to the letter by saying that Sony is happy to have a "constructive dialog" with shareholders but has no plans to sell the Entertainment business.
And so it begins...
Although Loeb appears to be going the extra mile to be polite, he is also not sitting quietly in New York and passively supporting Sony's management team. To the Japanese, Loeb's letter may be viewed the way a letter from, say, a Chinese billionaire investor to the management of American car giant General Motors, might be viewed: As an inappropriate and outrageous attack on an iconic American company by a foreigner. For very good reason, Sony's brand and heritage is a source of great pride in Japan, and most Japanese will probably not take kindly to the idea that an American hedge-fund manager in New York is telling the company what to do.
On the other hand, Sony's stock is down a staggering 85% from its peak, and the company has only reported one quarterly profit in 5 years. Sony has also lost its leadership position in electronics to Apple, Samsung, and other companies, and is in desperate need of revitalization.
So far, Loeb's polite demands have created value for everyone: Sony's stock popped more than 10% on the news.
But now it is going to get interesting.
If Sony resists Loeb, Loeb will presumably become more assertive and aggressive in demands.
If Sony just rolls over and kowtows to Loeb, meanwhile, it will risk looking as though it is just dancing on an American investor's puppet strings.