This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How Dan Loeb's Sony Split Mirrors Yahoo! Rebirth

With the support of a Sony Entertainment spinoff, Loeb believes there is the prospect Sony can retool it's electronics business, which has lost a brand premium to Samsung and LG and isn't as advanced in smartphones and tablets as Apple (AAPL - Get Report).

In particular, Loeb sees reason to believe Sony can revive its television business, while developing its better-performing electronics products like its PlayStation console, Xperia smartphones and cameras.

"Of particular regret is Sony's venerable TV business which has sadly languished as a loss leader for the company for nearly a decade, but now appears poised to return to profitability in coming quarters," Loeb wrote.

"[We] believe Sony Electronics is a source of considerable and underappreciated value," the activist concluded. Loeb calculated Sony Electronics current valuation at about $8 billion, or a little over a third of the company's overall market cap as of Friday's close.

Using Yahoo! as a litmus test for Loeb's proposed turnaround of Sony is important given the company's tremendous operational challenges.

In an excellent 2011 analysis, Bloomberg highlighted a quagmire at Sony worthy of a Harvard Business School case study that almost seemed intractable until Loeb's moonshot.

While Sony's TV business is a loss leader, it remains a key source of revenue that is necessary for the development of higher margin gaming and mobile products.

A sale or spinoff of Sony's TV business, the Bloomberg analysis showed, would eliminate the revenue needed to drive R&D and marketing of higher margin products. Given Sony's debt levels, it's no surprise the company has shown no inclination to exit the TV business.

Sony appears drawn to a spinoff of Sony Entertainment and said on Tuesday it is evaluating Loeb's proposal.

While Loeb is surely investing in Sony as an electronics sector turnaround and Yahoo! for its prospects of regaining relevance on the Web, his investments hinge on the belief that split off businesses can support the valuations and balance sheets of both companies.

If there is anything that should give Sony investors' confidence Loeb can be the company's savior it is the strong performance of Yahoo! shares even before CEO Marissa Mayer has made an impact on the company's earnings.

-- Written by Antoine Gara

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $122.37 -0.50%
SNE $29.12 -1.42%
TWX $88.44 0.37%
YHOO $37.42 -0.66%
FB $95.21 -1.84%

Markets

Chart of I:DJI
DOW 17,745.98 -5.41 -0.03%
S&P 500 2,108.63 +0.06 0.00%
NASDAQ 5,128.7850 +17.0520 0.33%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs