The Sony Corp. board of directors plans to reject a proposal for an initial public stock offering of its entertainment unit. The news, first reported by Nikkei, caused Sony Corp. shares to drop by as much as 3.1%. A company spokesperson told Bloomberg that Sony's board and management will continue to review the proposal.
The company had been considering a proposal by the hedge fund Third Point, which owns 6.9% of Sony Corp. shares, to sell up to 20% of Sony's music, television and film divisions to the public. In May, fund manager Daniel Loeb urged Sony to become more disciplined and focused on an entertainment unit that lags competitors in profitability. He estimates Sony's entertainment unit is worth up to $10 billion, and an IPO could raise $2 billion to go toward acquisitions and other investments.
Loeb reiterated the call for an IPO in a June letter, then argued Sony's entertainment division lacks "the discipline and accountability" of its peers. "In light of this track record, it seems difficult to argue that entertainment would not be strengthened by the transparency that comes with public reporting, an active media analyst community evaluating financial performance regularly and an expert board with strongly aligned incentives," he stated in the letter.
Sony eked out a small profit of $35 million in the second quarter. The music division posted a 13.3% increase in revenue to $1.13 billion and a 48.1% increase in operating income to $109 million. A weak yen, however, drove the gains as the division's sales were "essentially flat" compared to the second quarter of 2012.