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Billionaire investor calls for Sony to break off part of entertainment business

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Sony Entertainment Network (STOCK)
Sony Entertainment Network (STOCK)

A prominent Wall Street hedge fund manager is calling for Sony to spin off some of its holdings in order to focus on its core electronics business. Daniel S. Loeb, whose Third Point fund owns one of the largest stakes in the company at 6.5 percent, is pushing for Sony to sell off part of Sony Entertainment, the company’s movie and music business, as well as Sony’s 60 percent stake in Sony Financial, including its profitable insurance business. Loeb personally delivered the advice to Sony CEO Kazuo Hirai in the form of a letter, reports The New York Times.

Loeb is known for making waves, blowing the whistle on former Yahoo CEO Scott Thompson’s false claims to having earned a computer science degree, and luring Yahoo CEO Marissa Mayer away from her role at Google.

Loeb thinks that a partial sale would give Sony shares a 60 percent boost

Sony Entertainment’s Sony Pictures is one of the biggest names in movies and TV, while Sony Music Entertainment is likewise a huge record label bankrolling big-name artists like Ke$ha and Carrie Underwood. But despite the arm’s massive scale (The Times notes that it makes up more than 40 percent of Sony’s enterprise value), Loeb thinks that market pressure from a 15-20 percent sale would not only make it leaner, but that the partial spinoff would give Sony shares a 60 percent boost in value. "While the Entertainment businesses are top performers within Sony," he writes, "profit margins fall short when benchmarked against their US-listed competitors despite superior scale and leading market positions." Under Loeb's plan, current Sony shareholders would be given first crack at the shares in Sony Entertainment — the company's "hidden gem."

Since taking the reins at Sony, CEO Kazuo Hirai has worked to streamline the company, focusing on pillar product categories like gaming, imaging, and medical instruments, ultimately leading the company to its first profit in five years. (As The Wall Street Journal points out, the profit was actually negatively affected by the recent weakening of the yen.) However, Loeb is calling for a much more aggressive plan of action. "While Third Point supports your agenda for change, we also believe that to succeed, Sony must focus," he wrote.

Update: Predictably, the Sony board is not exactly enthusiastic about Third Point's plan. Reuters reports that the company has replied to Loeb's letter, saying its entertainment businesses are important to its growth strategy and "are not for sale."