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Sony Rejects Breakup Proposal From Dan Loeb

Patrick Frater

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Sony has rejected the corporate breakup proposal that it received three months ago from activist investor Dan Loeb and his Third Point Capital. Loeb, who in June built up a $1.5 billion stake in the company, had called on Sony to divest its image-sensors business in order to focus more on entertainment, release value and improve share price.

The Japanese electronics-to-entertainment conglomerate said Tuesday that it had conducted a three-month review of operations and strategy and that its board had unanimously rejected Loeb’s suggestion. It called its image-sensor business a “crucial growth driver.”

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“Sony’s board, which is comprised of a majority of independent outside directors with diverse experience in a variety of industries, unanimously concluded that retaining the semiconductor business (now called the Imaging & Sensing Solutions (“I&SS”) business) is the best strategy for enhancing Sony’s corporate value over the long term,” Sony said in an eight-page letter sent to shareholders and stock markets. “This is based on the fact that the I&SS business is a crucial growth driver for Sony that is expected to create even more value going forward through its close collaboration with the other businesses and personnel within the Sony Group.”

Loeb made a similar attempt to break up Sony six years ago. But on that occasion he argued that the group’s film business was “poorly managed” and pressed Sony to sell or spin off its entertainment businesses. Sony responded by insisting that owning 100% of its entertainment business is fundamental to its strategy.

Sony said that it defines itself as a “creative entertainment company with a solid foundation of technology.” “Many of the world’s leading entertainment companies are now seeking to acquire technology, while many technology companies are moving into the entertainment space,” Sony said. “The clear trend we see is for entertainment businesses of today to be directly connected to technology.”

Chairman and CEO Kenichiro Yoshida gave a robust account of the improvements made at Sony since Loeb’s previous attack on the company.

“In recent years, Sony has achieved sales and profitability growth in the Game & Network Services, Imaging & Sensing Solutions (formerly Semiconductors) and Music segments; enhanced profitability in the Pictures and Electronics Products & Solutions segments; and secured stable profit contribution from the Financial Services segment. We have executed measures to realign our business portfolio, such as withdrawing from the PC business and selling the battery business,” Yoshida said in a statement.

“Through these measures, we have steadily improved both profitability and capital efficiency. Each of our current segments has a strong competitive position and is generating cash flow in a sustained manner. As a result, for two consecutive years (in the fiscal year ended March 31, 2018 and the fiscal year ended March 31, 2019) we have achieved record levels of consolidated operating income and net income per share, while we have also steadily improved return on equity (“ROE”), achieving a level significantly above our 10% target over the same two-year period.”

Yoshida said that the financial improvements had permitted “capital expenditures in image sensors and the acquisition of the remaining equity interest in EMI Music Publishing,” as well as share re-purchases (which drive up the price of the remaining stock).

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