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Sony investor proposes spinning off the profitable entertainment unit

Sony investor proposes spinning off the profitable entertainment unit

By Agence France-Presse | Updated: 15 May 2013 12:15 IST

Sony shares rocketed Wednesday after a US hedge fund called on the company to sell off part of its entertainment unit, in a rare bid by a foreign investor to penetrate Japan's staid corporate culture.

The Tokyo-listed stock was up 11.56 percent to 2,094 yen by the morning break, hitting its highest levels since mid-2011 after they dropped below 1,000 yen last year for the first time since the era of the Walkman.

Daniel Loeb, whose hedge fund company Third Point has been amassing a stake in Sony, proposed selling off as much as 20 percent of the Japanese giant's entertainment arm, which includes profitable movie and music divisions.

Loeb known for his aggressive style in forcing change at targeted firms said he supported chief executive Kazuo Hirai's bid to shake up one of Japan Inc.'s best-known names.

"Since taking the helm as chief executive officer (last year), your stated commitment to reinvigorating the company has given us hope that Sony is entering a new era," Loeb said in a letter to Hirai dated May 14.

But "for Sony to change, Sony must focus".

The call comes as foreign investors take a renewed interest in Japan with Tokyo's pledge to stoke the country's long-stagnant economy helping to send the benchmark Nikkei 225 index soaring to over five-year highs.

Last week, Sony reported its first annual net profit in five years, although it was largely driven by a weakening of the yen which helps boost the value of its repatriated foreign income and a string of asset sales including unloading its Manhattan headquarters.

Hirai has launched what he called an "urgent" restructuring plan, including thousands of job cuts, as Sony continued to pile up losses in its ailing television and consumer electronics units.

Sony and domestic rivals Sharp and Panasonic have suffered in the low-margin television business against foreign rivals, while slowing demand overseas and strategic mistakes including coming late to the lucrative smartphone market also battered their finances.

Still, Japan's electronics giants have been wary about slicing up businesses that encompass a vast range of consumer products with everything from DVD players to washing machines.

Loeb wants Sony to float part of its media division, which includes one of Hollywood's biggest movie studios and a major music label with artists such as Alicia Keys and Taylor Swift, by distributing shares to those who already have holdings in the parent company.

The offering would act as an incentive to bring up the unit's lagging profit margins, he said, adding that the "under performance would be remedied by a more disciplined management approach to Sony Entertainment".

While such action is common in the United States, it is rare for a foreign shareholder to have success in bringing about change at a Japanese firm, with many major corporations controlled by domestic institutional shareholders.

Hirai is set to outline Sony's plans going forward next week, but the firm has initially rebuffed Loeb, who says Third Point is now Sony's single-largest shareholder with a stake topping 6.0 percent.

Sony would continue "constructive dialogue with our shareholders as we pursue our strategy", but added that the "entertainment businesses are important contributors to Sony's growth and are not for sale".

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