Sony: clinging to the family silver

Thank you, but we’ll hold on to the family silver. Daniel Loeb has joined the long line of activist investors rebuffed by Japanese companies. Sony’s let-down letter to Mr Loeb, who wanted a partial float of its entertainment business, was as polite as Mr Loeb’s first missive to the company. It was far more polite than Mr Loeb’s latest blast, which described the movie and music division as bloated and poorly managed. Sony’s shares fell 5 per cent on the rebuff. But did anyone really think a split was on the cards?

This is Japan after all. Kazuo Hirai, Sony’s chief executive, has been part of what he calls the “Sony family” for 30 years – a not unusual career in Japan’s giant corporations. The music and movie businesses were acquired in the 1980s, when Sony’s Walkman was its soaraway success. Thus the idea of mixing content and electronic devices to produce a formula for profits has long been Sony’s mantra – even if a consistent method of doing so has eluded it so far.

The entertainment division is a steady cash generator: its Y370bn ($3.8bn) of operating profits over five years came off so-so margins of 5 to 7 per cent. Mr Loeb’s call for stronger cost controls is reasonable. Those operating profits were made as the electronics units lost a net Y600bn on their operations. Since in practice the two divisions seem unable to produce synergies, the idea of splitting the good from the ailing has theoretical merit. Still, practicalities trump thinking: who in Japan, tasked with turning around electronics, is really going to part with a reliable source of cash?

Mr Loeb’s initial idea was that a split would allow Sony to focus on electronics, which he thought under-appreciated. Since Mr Loeb revealed his stake, Sony’s shares have risen just 8 per cent. In theory, that leaves plenty of appreciation still to be had, if Mr Loeb wants to back his belief.

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