Counterparties: Loeb’s electric epistle

May 14, 2013

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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.

Then again, maybe this whole scheme is a huge bet that Japanese macro policy will continue to drive the Japanese yen down and benefit Sony’s bottom line. — Peter Rudegeair

On to today’s links:

The price of oil may finally start declining – Quartz

EU Mess
The ECB pushes for a full banking union as Germany stalls – Reuters
The euro is leading to the demise of the EU – George Soros

Life Is Not Fair
An undead Lehman tries to grab millions from non-profits for its bankruptcy creditors – Bloomberg

Welcome To Adulthood
It’s probably time to start talking about global youth underemployment – Shane Ferro

New Normal
The US could return to pre-crisis employment in the middle of next year – Calculated Risk
A new type of growth is coming from the new collaborative sharing economy – FT

Crisis Retro
Nearly six years after the crisis, ratings shopping is very much alive and well – Bloomberg

Good News
The CBO says the deficit problem is solved for the next 10 years – Ezra Klein

Why dedecimalization is a bad idea – Reuters

University presidents get paid a lot – Pacific Standard

Strange Bloomberg Headlines
“Brokers Go Gray as Youth Unsustainable Without Cold Calls” – Bloomberg

Rich moms are hiring the handicapped to pose as family members to cut lines at Disney World – NY Post

Family offices are the new private equity firms – Reuters

France may tax smartphones to protect its culture from foreign competition – BBC

Possibly Useless Data
Europeans hate the EU (and the Germans), but can’t quite let go of the euro – FT Alphaville

And, of course, there are many more links at Counterparties.

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