Sony Rejects Loeb’s Proposal to Spin Off the Semiconductor Business

September 17, 2019 | Activist Updates, Hedge Funds
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Company CEO doesn’t flinch under pressure from Third Point

Sony CEO Kenichiro Yoshida told shareholders today that the company intended to retain its semiconductor business. In a letter to shareholders, Yoshida said that “retaining the semiconductor business is the best strategy for enhancing Sony’s corporate value over the long term.”

The decision comes after a three-month internal review of the business following pressure from activist investor Third Point. In June 2019, Dan Loeb’s Third Point demanded in a letter that Sony spin off its semiconductor business.

The hedge fund claimed it had a $ 1.5 billion position in Sony. It has argued that Sony’s stock remains undervalued. Third Point suggested that Sony needed to simplify its portfolio by divesting certain holdings. These included Sony Financial Holdings Inc, Olympus Corp, and Spotify Technology.

Sony CEO Kenichiro Yoshida Letter to Shareholders

The company renamed its semiconductor business as the Imaging & Sensing Solutions business (ISS).

Sony CEO Kenichiro Yoshida said the company, along with financial and legal advisors in both Japan and the US, analyzed the proposal.

It concluded that ISS, a crucial growth driver for the company, would create even more value going forward. Further, this would be possible through close collaboration with the other businesses and personnel in the group.

Sony agreed with Third Point’s description of ISS as a “Japanese crown jewel and technology champion.”

“We expect it to not only further expand its current global number one position in imaging applications but also continue to grow in new and rapidly developing markets such as the Internet of Things and autonomous driving,” Yoshida said.

The letter said the image sensors business could evolve from being just hardware to a solutions and platforms business.

Further, spinning off the ISS business would result in significant “dis-synergies” such as higher patent licensing fees, tax inefficiencies, and additional costs from a public listing.

Divestment of holdings

Sony nixed the suggestion to divest Sony Financial Holdings Inc. saying it was a significant contributor to the group’s profitability. Also, the company’s financial services businesses benefited from the Sony brand name. The brand earned customers’ trust and confidence.

On other stakes, Yoshida said Sony regularly appraised these investments from “both a business strategy and economic value perspective.” The company’s board considered these analyses and made appropriate decisions. Accordingly, Sony divested its entire stake in Olympus Corporation in August 2019, generating a return of 207%.

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