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).
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 Follow @antoinegara
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