Sony (NYSE:SNE) rejected a proposal on Tuesday to spin off part of its entertainment arm, pushing back against efforts by hedge-fund billionaire Daniel Loeb to boost the Japanese conglomerate’s profitability.
Shares of Sony, which had rallied on Loeb’s initial $1.1 billion investment, retreated about 4% in response to the latest news.
“The board and management team strongly believe that continuing to own 100% of the company’s entertainment businesses is fundamental to Sony’s success, and that a rights or public offering is not consistent with the company’s strategy for achieving sustained growth in profitability and shareholder value,” Sony said in a statement.
In response, Third Point said it "intends to explore further options to create value for Sony shareholders," without specifying what those options might be.
Third Point had pushed management to take public a 15% to 20% stake in Sony Entertainment, “allowing it to thrive independently with the support” of the parent company while “increasing capital to revitalize Sony Electronics.” Loeb later increased Third Point's stake in Sony to $1.4 billion.
The Japanese company cited a number of factors behind the decision, including increasing demand for content in an industry being powered by emerging distribution platforms. “Sony believes its entertainment businesses will increasingly benefit from these trends, and the company’s shareholders will benefit from owning all, rather than a part, of these valuable assets.”
Sony also said keeping full control of its entertainment businesses “drives internal collaboration, facilitates synergies and allows the company to be more nimble."
The company said a loss of total control “would create the otherwise unnecessary and burdensome arm’s length intercompany relationships,” limiting its flexibility.
Lastly, Sony concluded that it already has “adequate” capital to pay for its business plans.
Sony also said it expects to provide additional information on its entertainment businesses in the second quarter to help market participants evaluate their progress.
“Although we are disappointed the board decided not to pursue a public offering of the entertainment business at this time, Third Point welcomes Sony's commitment to greater transparency and expects this will foster a culture of accountability,” the hedge fund said in a statement.
Third Point urged Sony to “communicate more specific plans to improve entertainment results” and said it “looks forward to an ongoing dialogue with management and intends to explore further options to create value for Sony shareholders.”
Sony had previously signaled it was seriously considering enacting Loeb’s move, going so far as to hire Goldman Sachs (NYSE:GS) to explore the ramifications of a partial spin off.
U.S.-listed shares of Sony dropped 3.91% to $20.91 in premarket trading on Tuesday morning, leaving them on track to trade more than 10% below their post-Loeb high of $23.28 that was set on May 22.