Support NeoGAF

[Aquamarine]

The Story:

Sony (SNE) board has rejected Dan Loeb's proposal to spin off the company's entertainment ops in an IPO by a unanimous vote.

The company asserts 100% ownership of its entertainment ops is crucial to its success.

Sony shares are down (-2.1% AH).

(Credit: Seeking Alpha)

UPDATE #1:

Third Point plans to continue talks with Sony (SNE) and look at "further options to create value" for shareholders after the latter rejected a proposal from Daniel Loeb's fund to partially list its entertainment arm.

Sony intends to improve transparency at the division, including providing revenue figures for certain categories of its pictures and music segments.

However, Loeb, who holds 7% in Sony, wants the company to provide more specific plans about how it will improve the performance of the unit.

Sony's shares are down (-4.6%) in Tokyo.

(Credit: Seeking Alpha)

UPDATE #2:

Daniel Loeb will reportedly give Sony (SNE) breathing room to show how its content and hardware operations benefit each other, but he wants the company to provide detailed plans and set financial targets for the entertainment division in order to increase accountability.

Loeb, whose Third Point hedge fund owns a 6.9% stake in Sony, expects significant progress by May 2014; in the meantime, he doesn't intend to start a proxy fight and nor is he likely to call a special meeting.

The report comes after Sony's board rejected Loeb's call to partially spin off its entertainment business.

Sony shares are at $20.32 (-1.93%).

(Credit: Seeking Alpha)

Background:

• Daniel Loeb, Hedge Fund Manager of Blue Point (owns 7% of Sony), wants Sony to prioritize its Electronics sector (everything but Finance, Movies, TV, and Music), to "maximize success, reduce burdensome debt and ... provide additional capital."
  
  
• Loeb believes that creating a public offering (partial split-off) for Sony Entertainment (Movies, TV, and Music) will result in a "more disciplined management approach" and will put it up to par with its competitors. He has also called the company's entertainment division poorly managed and said he wanted it to be more transparent and accountable.
  
  
• Kaz Hirai and other Sony executives were "considering the proposal."

Additional Information:

The letter followed a meeting between Mr. Loeb and Sony’s bankers on July 17, at the hedge fund manager’s Midtown Manhattan offices.

Sony’s chief executive, Kazuo Hirai, wrote in Monday’s letter that the company had considered Mr. Loeb’s proposal of spinning off a portion of the entertainment unit to the public markets. But after consulting with its financial advisers, Sony believed that owning all of the business would let it better mesh with its core electronics operations, without the legal encumbrances that a partial split-off would entail.

Moreover, Mr. Hirai wrote that Sony had considered and dismissed the notion that the company needs the capital that Mr. Loeb’s plan would have generated. Should it need to raise more money, the conglomerate would look to other avenues for financing.

But Mr. Hirai did make one concession, writing that Sony’s entertainment arm will begin disclosing more information about the performance of the business.

Advisers to Sony had also recommended rejecting the proposal because of the tough history of partial spin-offs, according to a person briefed on the matter. A number of companies have tried listing subsidiaries on the public markets, with many having resorted to buying back the operation afterward.

(Credit: Bloomberg)
http://www.bloomberg.com/news/2013-...quest-to-sell-part-of-entertainment-unit.html

 

[DrEvil]

Sony to go third party etc etc Nintendo to rise to heaven Microsoft am doomed. Did I get them all? Oh. Dreamcast 2 confirmed.

 

[RevoDS]

Can't say I'm surprised.

 

[BertramCooper]

Sony isn't going to stay intact forever.

It's only a matter of time before it starts breaking itself up.

 

[vivftp]

Good for them.

If they have a goal to tighten all their various divisions to get them to help making each other better and more profitable then I'm glad they didn't let themselves get pushed into doing something like this spinoff proposal.

I wonder if they're still planning some sort of internet based TV service.

 

[Deleted member 80556]

Wise move. This merely Loeb's attempt to gain more money instead of helping Sony.

Sony Pictures has been doing very well though, right? It's one of the few divisions doing a good amount of money (with movies like Django and Zero Dark Thirty).

Sony isn't going to stay intact forever.

It's only a matter of time before it starts breaking itself up.

Nintendo isn't going to stay intact forever. It's only a matter of time before it starts breaking itself up.

Microsoft isn't going to stay intact forever. It's only a matter of time before it starts breaking itself up.

Apple isn't going to stay intact forever. It's only a matter of time before it starts breaking itself up.

I could go on and on. Sony is in a transition, it's a miracle they could pick themselves up after many years of Billions in losses.

 

[RE_Player]

Good. Kaz has been making smart moves across all their product lines so it wouldn't be wise to make such a big change before the ball can really get moving.

 

[Blader]

So did George Clooney win?

 

[gazele]

Wise move. This merely Loeb's attempt to gain more money instead of helping Sony.

Sony Pictures has been doing very well though, right? It's one of the few divisions doing a good amount of money (with movies like Django and Zero Dark Thirty

They've had a few bombs, especially this year, White House down and a few others, but I'm glad this isn't happening, this loeb guy seems like an asshole

 

[Bishop89]

Great news, the spinoff would have sucked

 

[Fezan]

They've had a few bombs, especially this year, White House down and a few others, but I'm glad this isn't happening, this loeb guy seems like an asshole

Thats because they most of the time try new ip and over budget most titles.
Ontopic : IF KAz really pulls this off it will be one of the best turn around and sony will have leverage on almost all entertainment business.(games,movies,music and TV)

 

[jtb]

So did George Clooney win?

heh, exactly what I was thinking.

 

[davepoobond]

Good decision. As a 5 stock holder of Sony I am proud of my investment in all of Sony in one fell swoop

 

[megarockexe]

Here I am thinking it was some arm peripheral akin to the Power Glove.

 

[BertramCooper]

Nintendo isn't going to stay intact forever. It's only a matter of time before it starts breaking itself up.

Microsoft isn't going to stay intact forever. It's only a matter of time before it starts breaking itself up.

Apple isn't going to stay intact forever. It's only a matter of time before it starts breaking itself up.

I could go on and on. Sony is in a transition, it's a miracle they could pick themselves up after many years of Billions in losses.

Sony is a conglomerate involved in numerous industries - too many for its own good.

Microsoft, Apple and Nintendo are not conglomerates.

It makes sense for Sony to start chipping off pieces.

 

[charsace]

lol at this guy's bullshit. He thinks sony is in trouble and wants to make as much money as he can off the company. Fuck this leech.

 

[ReturnOfTheRAT]

Loeb was put in his place.

 

[Mung]

Loeb is just a parasite with money. Activist my ass. He only cares about his own profit. He lost all credibility with his last statement IMO. Focusing on 2 flops this year whilst totally ignoring last years huge successes. Read like a forum post!

 

[zomgbbqftw]

Was an inevitable consequence. Kaz doesn't want to be seen as a pushover, so what was probably on the cards before (loads of rumours say SPE was up for sale last year) has now been scotched in favour of trying to make it work again. That Kaz was able to get Michael Lynton on stage at E3 and announce some kind of exclusive service coming to the gaming side is a huge win for Kaz within Sony, probably fuelled by Loeb's meddling. Now driven by the threat of being sold, SPE will end up working for Sony. That PlayStation TV service that was copyrighted earlier is probably SPE's VoD service, that they could add to PS+.

The next step has also been to greenlight SCE based IP at SPE. See the Gran Turismo movie that is being planned and I've heard that SPE are finally moving ahead with production for Uncharted as a 2015 tentpole. That's a big move if it happens, SPE would finally be taking SCE IP seriously in terms of story and narrative. The Last of Us should be another prime candidate for turning into a movie or more likely a TV-series and SPTV needs a new blockbuster hit with which to replace Breaking Bad, so I really hope TLOU is under consideration.

All in all, Dan Loeb will get what he wants, more investment from Sony into the entertainment arms which will yield better profits.

 

[childplease]

So what was so wrong about the proposal ?

Split Sony into 2 arms. Electronics and Entertainment have them each be measured on their own merit and better focus on their own strengths.


How is this a bad thing exactly ?

 

[iamshadowlark]

So what was so wrong about the proposal ?

Split Sony into 2 arms. Electronics and Entertainment have them each be measured on their own merit and better focus on their own strengths.


How is this a bad thing exactly ?

?

It was for a public-offering, they wouldn't own the assets anymore.

 

[Aquamarine]

UPDATE #1:

Third Point plans to continue talks with Sony (SNE) and look at "further options to create value" for shareholders after the latter rejected a proposal from Daniel Loeb's fund to partially list its entertainment arm.

Sony intends to improve transparency at the division, including providing revenue figures for certain categories of its pictures and music segments.

However, Loeb, who holds 7% in Sony, wants the company to provide more specific plans about how it will improve the performance of the unit.

Sony's shares are down (-4.6%) in Tokyo.

(Credit: Seeking Alpha)

 

[Bundy]

So what was so wrong about the proposal ?

Split Sony into 2 arms. Electronics and Entertainment have them each be measured on their own merit and better focus on their own strengths.


How is this a bad thing exactly ?

Child, please....!

 

[Aquamarine]

So what was so wrong about the proposal ?

Split Sony into 2 arms. Electronics and Entertainment have them each be measured on their own merit and better focus on their own strengths.


How is this a bad thing exactly ?

Zomgbbqftw laid it out most eloquently above...Loeb is one of this ego-swollen investors who thinks he can just walk into major Japanese companies and break apart the status quo all by himself.

What does it say about Kaz Hirai as a CEO if he just lets some hedge fund investor tell him how to run Sony? It certainly doesn't give us much confidence in his long-term vision to restructure the company.

HOWEVER, because Kaz has rejected Loeb's proposal, they're going to be under pressure to demonstrate an increased enterprise value of the Sony Pictures Entertainment division.

Sony will have to quickly go through and remove the mismanagement and clean the division up, because some investors have legitimately thought Loeb's IPO idea was optimal for the company.

 

[RPGamer92]

So what was so wrong about the proposal ?

Split Sony into 2 arms. Electronics and Entertainment have them each be measured on their own merit and better focus on their own strengths.


How is this a bad thing exactly ?

Child please

 

[pestul]

Samsung Playstation 4.

 

[jcm]

Sony is a conglomerate involved in numerous industries - too many for its own good.

Microsoft, Apple and Nintendo are not conglomerates.

It makes sense for Sony to start chipping off pieces.

Explain exactly how spinning off the entertainment business makes Sony stronger.

 

[AgentChris]

"Corporate raider"

 

[BertramCooper]

Explain exactly how spinning off the entertainment business makes Sony stronger.

If it intends to stay a major player in electronics - which by all accounts, it most certainly does - it would be better to spin off entertainment so that the company can have a greater focus on electronics a more streamlined approach to rebuilding it.

And the sagging electronics division has been pulling down the entertainment division for years now because entertainment has pretty much had to subsidize electronics.

I would think the entertainment arm would appreciate not operating under that sort of constant pressure, and I think electronics would be better off with management that is more focused on their needs.

 

[Enkidu]

Zomgbbqftw laid it out most eloquently above...Loeb is one of this ego-swollen investors who thinks he can just walk into major Japanese companies and break apart the status quo all by himself.

What does it say about Kaz Hirai as a CEO if he just lets some hedge fund investor tell him how to run Sony? It certainly doesn't give us much confidence in his long-term vision to restructure the company.

HOWEVER, because Kaz has rejected Loeb's proposal, they're going to be under pressure to demonstrate an increased enterprise value of the Sony Pictures Entertainment division.

Sony will have to quickly go through and remove the mismanagement and clean the division up, because some investors have legitimately thought Loeb's IPO idea was optimal for the company.

That doesn't explain why this is a bad idea though. You're basically saying that regardless of whether this is a good or bad idea, Sony won't do it since folding to pressure from a hedge fund investor would make them look weak. There are a lot of people who seems to believe that splitting the company is a genuinely bad idea though.

 

[jcm]

If it intends to stay a major player in electronics - which by all accounts, it most certainly does - it would be better to spin off entertainment so that the company can have a greater focus on electronics a more streamlined approach to rebuilding it.

And the sagging electronics division has been pulling down the entertainment division for years now because entertainment has pretty much had to subsidize electronics.

I would think the entertainment arm would appreciate not operating under that sort of constant pressure, and I think electronics would be better off with management that is more focused on their needs.

I think this whole idea of "focus" is weak. Do you think having the movie studio distracts the hardware engineers who are developing imaging sensors? Is the poor performance of the electronics division constraining production budgets in the movie studio?

There are conglomerates that are highly successful. Nobody is clamoring for Samsung to spin off the shipbuilding, or for GE to spin of the nuclear power engineering. Sony needs to execute better, but I don't see how spinning off entertainment helps them to do that. The only reason to get rid of it is if they need to raise capital, and they claim they don't.

That doesn't explain why this is a bad idea though. You're basically saying that regardless of whether this is a good or bad idea, Sony won't do it since folding to pressure from a hedge fund investor would make them look weak. There are a lot of people who seems to believe that splitting the company is a genuinely bad idea though.

It's not like it's a drag on earnings. The entertainment business is profitable for Sony. The only reason to jettison it is if they need capital.

 

[BertramCooper]

I think this whole idea of "focus" is weak. Do you think having the movie studio distracts the hardware engineers who are developing imaging sensors? Is the poor performance of the electronics division constraining production budgets in the movie studio?

Over-diversification and internal politics can absolutely hamper innovation at conglomerates. It's one of the textbook disadvantages of the type of business. When everyone is firing on all cylinders - like at Samsung right now - it's awesome. When one part begins to struggle, it gets dicey.

For example, the poor performance of the electronics division puts more pressure on the entertainment division to achieve massive profits to bail them out. It's not a particularly healthy situation at the moment, especially now that entertainment is having a not-so-great year.

Honestly, it depends on what type of company Sony wants to be. If they want to stay unified, they're probably better off focusing on entertainment and financial services with a secondary focus on electronics. But I don't think anyone sees Sony actually doing that.

 

[jcm]

Over-diversification and internal politics can absolutely hamper innovation at conglomerates. It's one of the textbook disadvantages of the type of business. When everyone is firing on all cylinders - like at Samsung right now - it's awesome. When one part begins to struggle, it gets dicey.

For example, the poor performance of the electronics division puts more pressure on the entertainment division to achieve massive profits to bail them out. It's not a particularly healthy situation at the moment, especially now that entertainment is having a not-so-great year.

Honestly, it depends on what type of company Sony wants to be. If they want to stay unified, they're probably better off focusing on entertainment and financial services with a secondary focus on electronics. But I don't think anyone sees Sony actually doing that.

But the proposal wasn't to get rid of entertainment. It was to sell a piece of the business. Specifically:

Step 1: Take Public a 15—20% Stake in Sony Entertainment, Allowing It to Thrive Independently with the Support of the Sony Parent Company While Increasing Capital to Revitalize Sony Electronics

Would the entertainment business feel less pressure if Sony only held 80% of it?

 

[zomgbbqftw]

That doesn't explain why this is a bad idea though. You're basically saying that regardless of whether this is a good or bad idea, Sony won't do it since folding to pressure from a hedge fund investor would make them look weak. There are a lot of people who seems to believe that splitting the company is a genuinely bad idea though.

Yeah, there are two sides. One is that SPE is bound by ownership laws that mean they can't properly enter the TV market and compete with ABC (Disney), FOX (News Corp), NBC (Universal/Comcast), TW (HBO) and Viacom (Paramount). By comparison Sony Pictures Television is tiny as it is only able to sell content to other networks rather than create whole channels and licence them to cable providers or sell advertising slots on channels etc. Selling a stake on the open market and listing the company in the US would allow for SPE to invest money in creating new channels and sidestep current FCC regulations on ownership of networks and channels.

On the other hand, ownership of SPE would allow them to exploit internal IP at little to no cost (such as Uncharted, TLoU, Sony's extensive music publishing catalogue) and it allows Sony electronics to aggressively pursue product placement in their movies and TV shows which is basically free advertising. Especially in high profile titles like James Bond (I highly doubt that the whole of MI6 use Vaio's and Xperia phones, for example).

There is also an advantage to owning media divisions to push hardware standards, part of the reason Norio Ohga bought Columbia from Coke was to ensure that Sony would never be caught on the wrong side of a format war again (see Betamax) even though it's a lesser issue now given the boom of streaming, but even then Sony should do more to leverage the 10,000 strong Columbia pictures catalogue better for their devices. I think the partnership that was announced on stage at E3 is a step forwards, but we need to see what comes of it. If it is a success and SPE does start exploiting other Sony IP then I think they can make a success of it.

 

[SaSliXCII]

Sony can really become dominant in the entertainment industry if they just streamlined their divisions and made them compliment each other. We got a hint of that at E3, if they can improve their Music Unlimited and Video Unlimited services they can dominated the streaming market. They literally have all the tools to do so, the ball is in their court. It seems to be the right decision not to disband their divisions.

They lose the most money on their hardware, in particular their phones and tablets.

 

[Busty]

Considering that Sony Pictures only made a profit this quarter because it again sold off an asset to balance the books you can bet that Loeb won't be satifsfied with this answer and will continue to chip away at Sony and their resolve.

At this point I'm really not sure that Loeb is going to have any better time with SPE than Sony itself is. Not that he has an interest in running the company but rather 'turning it around' and flogging it off for a profit,

Sony isn't going to stay intact forever.

It's only a matter of time before it starts breaking itself up.

Sadly this will be true to a certain extent. But you can be damn sure that Kaz and the rest of the SONY board won't be rushed into doing this by a hedge fund owner.

And certainly not an American one.

So did George Clooney win?

George Clooney is always winning.

 

[Aquamarine]

That doesn't explain why this is a bad idea though. You're basically saying that regardless of whether this is a good or bad idea, Sony won't do it since folding to pressure from a hedge fund investor would make them look weak. There are a lot of people who seems to believe that splitting the company is a genuinely bad idea though.

Personally, I'm undecided on the matter. There are definite benefits to a more transparent view of / more independent management of the Entertainment arm.

I was orienting my response to why Sony should reject *that* proposal in particular.

It's just unthinkable for a Japanese CEO to bend to the will of a Western investor that easily. Japanese pride doesn't work like that.

What matters more than Mr. Loeb's arrogance is the fact that he's brought a lot of attention from investors to the undervalued entertainment operations.

 

[Aquamarine]

UPDATE #2:

Daniel Loeb will reportedly give Sony (SNE) breathing room to show how its content and hardware operations benefit each other, but he wants the company to provide detailed plans and set financial targets for the entertainment division in order to increase accountability.

Loeb, whose Third Point hedge fund owns a 6.9% stake in Sony, expects significant progress by May 2014; in the meantime, he doesn't intend to start a proxy fight and nor is he likely to call a special meeting.

The report comes after Sony's board rejected Loeb's call to partially spin off its entertainment business.

Sony shares are at $20.32 (-1.93%).

(Credit: Seeking Alpha)

 

[ShaneDude]

Samsung Playstation 4.

This doesn't even make any sense.

 

[diffusionx]

Zomgbbqftw laid it out most eloquently above...Loeb is one of this ego-swollen investors who thinks he can just walk into major Japanese companies and break apart the status quo all by himself.

I'm not a Loeb fan, nor am I a fan of the repellent "activist investor" type, but let's be honest here. Status quo ain't working.

Quite frankly, "Japanese business norms" or whatever don't matter anymore. Capital is global. Kaz Hirai's job is to make money for Daniel Loeb. Even Kaz Hirai would say that. So yea, he does kind of need to listen to him - which it appears he did.

Sony will have to quickly go through and remove the mismanagement and clean the division up, because some investors have legitimately thought Loeb's IPO idea was optimal for the company.

This is a good thing and maybe was Loeb's intention all along.

 

[Anth1888]

This is why the CEO of Sony Entertainment was at E3 to highlight that Sony are using their entertainment services with their hardware. Every product is now pre-loaded with SEN services - Music Unlimited/Video Unlimited, Play Memories ect.

 

[Deleted member 80556]

I'm not a Loeb fan, nor am I a fan of the repellent "activist investor" type, but let's be honest here. Status quo ain't working.

Quite frankly, "Japanese business norms" or whatever don't matter anymore. Capital is global. Kaz Hirai's job is to make money for Daniel Loeb. Even Kaz Hirai would say that. So yea, he does kind of need to listen to him - which it appears he did.

Loeb is not the only investor. He's one of the big ones, but not the only one.

 

[Novid]

You all make great points.

But this was Les Moonves last play to get the Sony Movie Studio. Even if it was 15% of the company - Les would have bought it.

Lucky Kaz said no. This time however, he has to bring PlaystationTV/SonyNet asap... they own Crackle, they own Flixter, they have Gakai which works better with holding Video Codecs than Video Game Code. The issue is the cable companies but they work well with Comcast and Time Warner Cable - and everybody feels they can trust Sony in a way than Apple or Samsung.

The Major Issue as Amazon and Netflix. If the margins don't match up, will they take there streaming audience with them?

 

[davepoobond]

I think it's nice that the guy is putting pressure on Sony. I suppose it might entice them to do better.