Sony May Consider Spinning Off Entertainment Division
May 22, 2013 8:19 AM
comment(s) - last by
Kazuo "Kaz" Hirai, President and CEO of Sony Corporation
Sony Entertainment spinoff likely
Sources indicate that Sony Corporation is currently considering a proposal from one of its top shareholders, Third Point LLC, to spin off its movie and music businesses.
reports that hedge fund manager Daniel Loeb’s hedge fund, which owns 6% of Sony’s stock worth roughly $1.1 billion, called on Sony to spinoff its profitable entertainment arm amid a decline in some other segments.
News of the potential spinoff sent shares of the company up 9% with shares trading at $22.87 yesterday afternoon.
Wall Street Journal
reports that Sony has announced that it plans to discuss the proposal with its board.
"The proposal from Third Point, Dan Loeb is something that we should discuss thoroughly at a board meeting and then we'll decide Sony's stance," Chief Executive Kazuo Hirai said in a briefing Wednesday to lay out his strategic vision for the company. "Therefore, we are now going to start the discussion and we are still at the starting stage."
Hirai didn't offer any timeframe for the discussions.
Loeb believes that taking up to 20% of Sony's Entertainment Division public would help generate capital needed to
overhaul Sony's ailing electronics business
. Sony performed something very similar in 2007 when its banking and insurance unit made an IPO.
Sony is mostly known as an electronics company, but electronics are not the segment that generates most of the company's revenue. Sony's entertainment and insurance units generate the vast majority of company profits.
Sluggish sales in the electronics market (TVs, digital cameras, computers, etc.) are having an impact on Sony's bottom line. Sony has also found it increasingly difficult to
compete in the smartphone market
, but the company is beginning to shift more of its focus there because of significant growth potential.
Wall Street Journal
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5/22/2013 8:58:20 AM
Spin off, not sell off. The keep a significant stake and make it a separate company. They may even distribute stock to current stockholders.
5/22/2013 9:09:37 AM
If they spin it off, they can't distribute stock to current shareholders. Spin off is selling because they are receiving something. If they keep majority share then they could have control. Control doesn't mean Sony Ent. will be able to pass its profits to Sony though.
That's not a good long term solution though. The only time it's good is when that spin off entity directly do work for the main branch. That way, their revenue and expense are tied together. One company's expense is the other's revenue. Expense is tax deductible so it benefits them. Spin off is also for liability reasons. It is also used to make their financial statements look better.
You usually only to spin off the underperforming divisions for all those reasons. It doesn't make sense take away your star.
5/23/2013 9:18:14 AM
If they keep a majority+ share of the spin-off, the subsidiary merely passes its profits to its own shareholders, which is mostly Sony....
There are lots of reasons to manipulate resources in this way. One obvious one is to allow the more successful entertainment business to get better rates for its financing, but there are a host of legal, tax and accounting reasons which might apply.
"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation
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