The board of directors of Sony Corporation (NYSE:SNE) (TYO:6758) unanimously rejected the proposal of Daniel Loeb, founder and CEO of Third Point to spin off the entertainment business of the company.
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Sony Stock falls
The decision by the Japanese company caused the stock price of the company to plummet by more than 5 percent on Monday. The stock managed to regain some of its value and ended the day at $21.20 per share, down by 2.57 percent.
In a letter to the hedge fund, the company emphasized that “continuing to own 100% of its entertainment is fundamental” to the success of Sony Corporation (NYSE:SNE) (TYO:6758). Loeb is currently the largest shareholder with 70 million shares worth around $1.4 billion.
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Last month, he reiterated that his proposal was simple and included a semi-independent governance structure. It provides a necessary organizational apparatus to streamline an overly cumbersome corporate structure. He said the current chairman, Kazuo Hirai should remain in his position. Loeb emphasized that the entertainment business of Sony Corporation (NYSE:SNE) (TYO:6758) is a “sleeping giant” with untapped synergies.
On the other hand, Sony Corporation enumerated several reasons for rejecting Loeb’s recommendation. The company said the demand for content is increasing its value in a dynamic industry. The board believes that is increasingly benefiting from the proliferation of mobile devices, high-speed internet access, and new distribution platforms.
The Japanese firm is also confident that the collaboration opportunities among its businesses are numerous and increasing. Sony Corporation (NYSE:SNE) (TYO:6758) pointed out, “a rights or public offering would create the need for otherwise unnecessary and burdensome arms length intercompany relationships.” The company believes that such plan could limit its control and strategic flexibility.
In addition, the board of Sony Corporation (NYSE:SNE) (TYO:6758) stressed that the company has adequate capital resources to support its business plans. In case the company requires capital or if an unanticipated event occurs, its priority is to raise capital and does not sell any part of an asset important to its growth strategy.
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“We are encouraged by our progress as we continue to execute on our One Sony strategy. We have made many changes during my tenure as CEO, and we are confident that we are on the right path. Sony’s entertainment businesses are critical to our corporate strategy and will be important drivers of growth, and I am firmly committed to assuring their growth, to improving their profitability, and to aggressively leveraging their collaboration with our electronics and service businesses. We are determined to pursue sustained growth in profitability and shareholder value, so that we can meet and exceed the expectations of all of our stakeholders,” said Hirai in a statement.
