Case Study

Sony and Third Point (A)

8 pages
December 2015
Reference: IMD-7-1751

Activist fund Third Point had a history of taking major stakes in companies, and then pursuing aggressive changes. In 2013 they had also engaged with Yahoo, in a proxy fight that culminated with a new CEO being nominated, and Loeb joining the board. By western standards, corporate governance in Japan was considered poor. This case focuses on TP engagement with Sony. TP proposed Sony to spinoff up to 20 percent of its Entertainment Division and to reduce debt to strengthen its ailing Electronics Division. On August 6, 2013, following a unanimous vote of Sony’s board of directors, Sony sent out a letter to Third Point rejecting its proposal. In the letter, Sony declared that carving out the company’s entertainment business did not align with the “One Sony” strategy it was pursuing and listed a number of supporting arguments. One of the major arguments was that content was becoming an inevitable part of the mobile device business, so owning the entertainment business and having full control of it would bring more value to the overall Sony business than selling it off. Sony’s president and CEO Kazuo Hirai was fully committed to enhancing collaboration between the entertainment business and the electronics and services businesses. Third Point expressed its “disappointment” that Sony was turning down its proposal and issued a statement saying that it would “explore further options to create new values for shareholders following talks with the Sony management.” Third Point also declared that it “welcomes Sony’s commitment to greater transparency and expects this will foster a culture of accountability” and expressed its intention to see how Hirai’s pledge to improve margins and provide additional disclosure would be achieved.

Learning Objective

Discussion regarding shareholder activism and its impact on value. What strategies investors use? Do they add value? What is the business model? What does Hirai want for his company going forward? How does its performance compare to peers? Synergies between entertainment and other business units? How does its performance compare to peers? What is the business model for Third Point? How are they different from traditional institutional investors such as pension funds? Why did TP target Sony?

Keywords
Shareholder Activism, Value Creation, Spin-off, Financial Strategy
Settings
Japan
Sony, Manufacturing, Electric and Electronic Equipment
2012-2015
Type
Published Sources
Copyright
© 2015
Available Languages
English
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