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Sony Downplays Third Point's Breakup Pitch

Stocks in this article: AAPL SNE YHOO

NEW YORK ( TheStreet) - Change at Sony (SNE) may take time, as the company tries to revive its competitiveness in the fast-moving electronics business.

Sony continues to downplay a breakup proposal that activist hedge fund investor Dan Loeb of Third Point Capital has proposed for the struggling electronics and entertainment giant. At the company's annual shareholder meeting in Tokyo, Sony CEO Kazuo Hirai said the company's media division, Sony Entertainment, is not for sale.

Hirai also indicated the company will take its time in assessing whether to spin off the business, as Loeb has proposed.

"The entertainment business plays an important role in Sony's future growth," Hirai said at the meeting. "This proposal strikes at the heart of what kind of company Sony ultimately will become in the future. We intend to take our time in discussing it."

In May, Loeb disclosed a 6.5% stake in Sony and a proposal to take public a 15%-to-20% stake in Sony Entertainment in a stock offering. The unit includes movie studios and music labels. Loeb is not advocating Sony sell the cash gushing entertainment business outright, nor is he asking the company to cede control.

The hedge fund manager has offered to provide up to a $2 billion financial backstop to a Sony Entertainment spinoff and gives the unit a valuation of about $8 billion, or a little over a third of the company's overall market capitalization.

On Tuesday, Third Point disclosed it had bought 5 million additional Sony shares, putting its overall stake in the company to about $1.4 billion or nearly 7% of the company's outstanding shares.

Media reports indicate Sony has hired bankers to weigh Third Point's proposals.

For now, Sony CEO Hirai's comments indicate Third Point's activist efforts may take time to bear fruit, if ever. In recent years, the hedge fund has successfully focused its efforts towards revitalizing Yahoo! (YHOO).

Many components of Third Point's plan for Sony resemble activist proposals the hedge fund enacted at Yahoo.

At Sony and Yahoo!, Third Point seeks to use divestitures of stakes in non-core businesses to realize a fuller market valuation of both companies. Sony and Yahoo!, meanwhile, have assets that are highly exposed to the Japanese Yen and Asian markets.

Currently, Third Point believes the Bank of Japan's loose monetary policy and a weakening of the yen will lift stocks in the region.

Sony, however, faces challenges that go far beyond the stagnation and mismanagement the activist sought to undo at Yahoo!. The company has over one trillion yen in outstanding debt and its electronics unit only recently returned to profitability after years of record losses.

Some analysts say Loeb and Third Point have it backwards with Sony. Atul Goyal, a Jefferies analyst, said earlier in June Sony should consider a spinoff of its struggling electronics business and not its successful entertainment unit.

Such scenarios will test the skill of Sony's recently reconstituted board of directors and its CEO Hirai.

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