Sony has no plans to spin off Sony Pictures and Sony Music.
On Monday Sony Corporation said that it has no plans to sell off its entertainment business. Sony's Board of Directors and management team said that keeping the entertainment branch will be fundamental to Sony's overall success, and that a rights or public offering is not consistent with achieving sustained growth in profitability and shareholder value.
"Sony Pictures and Sony Music are critical elements of our strategy and fundamental drivers of Sony’s growth for the future," states Sony president and CEO Kazuo Hirai. "We expect that our strategy will result in strong growth and increasing profitability through investing in high-growth, high-margin businesses, particularly in television production and international networks."
He said that Sony is aggressively investing in its Sony Pictures division, with 32 new and returning TV series on air in the US this year, including 15 new series in 2013-2014, the most ever for Sony. On the Sony Music front, this division continues to be profitable with margins that are believed to be generally in line with its peers.
"Pictures and Music are critical to Sony’s corporate strategy and will be essential drivers of our future growth," he tells Daniel Loeb, CEO of Third Point. "Many of your observations regarding our entertainment businesses, and in particular Pictures, are not consistent with the businesses I know. I am personally involved in the oversight of these businesses and firmly committed to assuring their growth, to improving their profitability, and to aggressively leveraging their collaboration with our electronics and service businesses."
He said that demand for content is increasing its value in a dynamic industry environment, and Sony believes its entertainment businesses will increasingly benefit from these trends. Full control of its entertainment businesses also drives internal collaboration, facilitates synergies, and allows Sony to be more nimble. Finally, there are alternative sources of capital available, should Sony require it.
"Sony’s Board and management team fully understand that the industries in which Sony operates are challenging, fast moving and competitive, and as a result we are very focused on avoiding obstacles that may hamper alignment among our businesses," Hirai states. "We believe Sony is already changing for the better, and we are encouraged by the opportunities that lie ahead as we aggressively pursue our One Sony strategy. We remain committed to pursuing sustained growth in profitability and shareholder value, so that we can meet and exceed the expectations of all of our stakeholders."
Back in May, hedge fund billionaire Daniel Loeb, who owns around 7 percent of Sony in shares and cash-settled swaps, urged the company to focus on its electronics business and spin off its entertainment business, the latter of which recently produced several box office bombs like After Earth and White House Down. He became more aggressive in his second quarter letter to Third Point hedge fund investors, calling the management of Sony's entertainment business "bloated."
“We find it perplexing that Mr. Hirai does not worry about a division that has just released 2013’s version of Waterworld and Ishtar back-to-back,” Loeb said. "We are also surprised that Sony’s CEO does not worry that Entertainment continues to generate profitability levels far below those of its competitors."
On Tuesday Third Point said that it will continue to work with Sony to explore further options. "Third Point looks forward to an ongoing dialogue with management and intends to explore further options to create value for Sony shareholders," the company said.
Meanwhile, Hirai said that Sony will be more transparent regarding its entertainment business. Starting in the second fiscal quarter of this year, the company will provide quarterly revenue figures for "certain categories" within the Pictures and Music segments. There will also be enough information for investors to calculate adjusted earnings before interest, taxes, depreciation and amortization for each segment, including Pictures and Music, he said.