Counterparties: Loeb’s electric epistle
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No CEO relishes being on the receiving end of a Dan Loeb letter. Today’s unfortunate addressee is Sony’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 even delivered his message by hand in Tokyo. And he certainly didn’t tell Hirai to “bend over the hedge funds have something special for you” as he wrote of Fairfax’s Prem Watsa in 2006. Nevertheless, he packs a punch: Loeb’s hedge fund, Third Point, has a $1.1 billion stake in Sony, and he’s fresh off the success of installing Marissa Mayer as the CEO of Yahoo.
Loeb’s Sony plan is twofold. First, he wants the company to spin out a 15-20% stake in Sony Entertainment, the company’s movie, TV, music and cable division. That move would raise up to $2 billion which in turn would finance the second part of Loeb’s plan: a revamp of the company’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 “our plan shifts that paradigm” and a notable lack of specificity about what in particular he’d like to see Sony Electronics do with $2 billion from Sony Entertainment. He likes Sony’s Playstation, smartphones and cameras, but Sony has a lot of catching up to do in these areas: Samsung’s smartphones outsold Sony’s 7-to-1 last year.
Loeb thinks Sony’s woes stem from a lack of focus, but what’s really troubling the company at present is that it “long ago stopped dreaming up game-changing products,” William Pesek writes. After all, in 2010 the company had a focus – 3-D TVs — but it couldn’t attract the customers. It’s unclear how an additional $2 billion will produce a breakthrough gadget given that a lack of resources doesn’t explain Sony’s innovation failures. The company spent $5.5 billion on research and development in fiscal year 2011 while Apple spent only $2.4 billion.
On to today’s links:
And, of course, there are many more links at Counterparties.