Sony’s dilemma: Pacify an activist investor, but risk a shakeup of Japanese corporate culture

May 14, 2013
May 14, 2013

If anyone can ruffle the sedate corporate culture of the Japanese, it’s Dan Loeb, manager of New-York-based hedge fund Third Point. The sometimes activist investor sent a letter to Sony CEO Kazuo Hirai today calling for changes at the iconic Japanese company. Loeb, with a 6.5% stake in Sony, is now one of the company’s largest shareholders. By going after a Japanese giant like Sony, Loeb is also bound to make waves in Japan’s corporate landscape.

Having lost the edge to Samsung and other competitors, Sony and its core electronics business have been struggling for years. Last year, Sony posted a net income of 43 billion yen ($421.5 million), its first profit in five years. But that was due to selling assets, cutting jobs and taking advantage of a weaker yen. And its annual profit forecast for this year missed analyst estimates.

In his letter, Loeb said that much of Sony’s current value is derived from its “hidden gem,” Sony Entertainment, which made the James Bond movie Skyfall, The Great Gatsby and Zero Dark Thirty. Loeb said the company would be better off taking a 15% to 20% stake in Sony Entertainment public. A spin-off of Sony Entertainment has long been rumored in the M&A world; a push from Loeb may be what Sony needs to make it happen. Loeb also said the company’s electronics division should focus on businesses in which it leads the industry, like its TV unit, and scrap products where it is weaker, like personal computers and DVD recorders.

In a statement, Sony seemed to give Loeb the brush-off, saying  it looked forward to dialogue with investors but Sony Entertainment wasn’t for sale. Activist investors are not common in Japan, and nor is the American way of publicizing disputes. During a conference on shareholder activism in April in New York, Kenji Iwamoto, director of engagement for the TMAM-GO Japan Engagement fund, said the corporate culture in Japan emphasizes cooperation and most discussions with companies are done behind closed doors.

But Sony only has to look at Loeb’s fight with Yahoo to know that he doesn’t give up easily. Loeb criticized the mismanagement of Yahoo, eventually ousting former Yahoo CEO Scott Thompson last year over an inaccuracy in his bio, which led to Marissa Mayer of Google taking his place.

That’s why Sony may be better off in the short term compromising with Loeb. But the company, and corporate Japan in general, probably don’t want to set a precedent. If Loeb makes even a little progress in his Sony fight, it could open the way for an invasion of American activist investors into Japan.

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