Counterparties: Loeb’s electric epistle
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No CEO relishes being on the receiving end of a Dan Loeb letter. Today‚Äôs unfortunate addressee is Sony‚Äôs 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‚Äôt tell Hirai to ‚Äúbend over the hedge funds have something special for you‚ÄĚ as he¬†wrote of Fairfax‚Äôs Prem Watsa in 2006. Nevertheless, he packs a punch: Loeb‚Äôs hedge fund, Third Point, has a $1.1 billion stake in Sony, and he‚Äôs fresh off the success of installing Marissa Mayer as the CEO of Yahoo.
Loeb‚Äôs Sony plan is twofold. First, he wants the company to spin out a 15-20% stake in Sony Entertainment, the company‚Äôs movie, TV, music and cable division. That move would raise up to¬†$2 billion which in turn would finance the second part of Loeb‚Äôs plan: a revamp of the company‚Äôs 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 ‚Äúour plan shifts that paradigm‚ÄĚ and a notable lack of specificity about what in particular he‚Äôd like to see Sony Electronics do with $2 billion from Sony Entertainment. He likes Sony‚Äôs Playstation, smartphones and cameras, but Sony has a lot of catching up to do in these areas: Samsung‚Äôs smartphones outsold Sony‚Äôs 7-to-1 last year.
Loeb thinks Sony‚Äôs woes stem from a lack of focus, but what‚Äôs really troubling the company at present is that it ‚Äúlong ago stopped dreaming up game-changing products,‚ÄĚ¬†William Pesek writes. After all, in 2010 the company had a focus –¬†3-D TVs — but it couldn‚Äôt attract¬†the customers. It‚Äôs unclear how an additional $2 billion will produce a breakthrough gadget given that a lack of resources doesn‚Äôt explain Sony‚Äôs 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‚Äôs links:
And, of course, there are many more links at Counterparties.