Counterparties: Loeb’s electric epistle
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No CEO relishes being on the receiving end of a Dan Loeb letter. Todayâ€™s unfortunate addressee is Sonyâ€™s Kazuo Hirai, who woke up to find Loeb urging a partial breakup of the Japanese conglomerate.
Loeb was more cordial, today, than he has been in the past; he evenÂ delivered his message by hand in Tokyo. And he certainly didnâ€™t tell Hirai to â€śbend over the hedge funds have something special for youâ€ť as heÂ wrote of Fairfaxâ€™s Prem Watsa in 2006. Nevertheless, he packs a punch: Loebâ€™s hedge fund, Third Point, has a $1.1 billion stake in Sony, and heâ€™s fresh off the success of installing Marissa Mayer as the CEO of Yahoo.
Loebâ€™s Sony plan is twofold. First, he wants the company to spin out a 15-20% stake in Sony Entertainment, the companyâ€™s movie, TV, music and cable division. That move would raise up toÂ $2 billion which in turn would finance the second part of Loebâ€™s plan: a revamp of the companyâ€™s once-vaunted but now-diminished electronics division. Loeb reckons that his scheme could boost Sony shares by 60%.
For all his boldness, Loeb is strategically vague at the same time, with language such as â€śour plan shifts that paradigmâ€ť and a notable lack of specificity about what in particular heâ€™d like to see Sony Electronics do with $2 billion from Sony Entertainment. He likes Sonyâ€™s Playstation, smartphones and cameras, but Sony has a lot of catching up to do in these areas: Samsungâ€™s smartphones outsold Sonyâ€™s 7-to-1 last year.
Loeb thinks Sonyâ€™s woes stem from a lack of focus, but whatâ€™s really troubling the company at present is that it â€ślong ago stopped dreaming up game-changing products,â€ťÂ William Pesek writes. After all, in 2010 the company had a focus –Â 3-D TVs — but it couldnâ€™t attractÂ the customers. Itâ€™s unclear how an additional $2 billion will produce a breakthrough gadget given that a lack of resources doesnâ€™t explain Sonyâ€™s innovation failures. The company spentÂ $5.5 billion on research and development in fiscal year 2011 while Apple spent only $2.4 billion.
On to todayâ€™s links:
And, of course, there are many more links at Counterparties.