Hello and goodbye highlights of Third Point's 3Q investor letter (Part 10 of 10)
(Continued from Part 9)
Saying goodbye to Sony
Previously in this series, we covered third-quarter positions taken by Third Point, as outlined in its investor letter. The fund revealed it had reduced or exited its positions in stocks including American International Group Inc (AIG), Hertz Global Holdings, Inc. (HTZ), Softbank Corp (SFTBF), Liquified Natural Gas (LNGLF), and Sony Corp (SNE). The exit from Sony was explained in detail.
Overview of Sony
Sony and its consolidated subsidiaries are engaged in the development, design, manufacture, and sale of various kinds of electronic equipment, instruments, and devices for consumer, professional, and industrial markets, as well as game consoles and software.
Sony is engaged in the production, acquisition, and distribution of motion pictures and television programming, and in the operation of television and digital networks. The company is also one of the top recorded music and publishing companies in the world.
Adding to these activities, Sony is engaged in various financial services businesses, including life and non-life insurance operations, through its Japanese insurance subsidiaries, and banking operations offered by a Japanese Internet-based banking subsidiary.
Spinoff of entertainment business
The fund had urged the company to spin off between 15 and 20% of its U.S.-based entertainment business. It said the separation of the “undervalued” entertainment business “should not only increase overall profitability but also provide capital to accelerate restructuring” at the struggling electronics division.
Third Point disclosed a “significant position” in Sony in May 2013. A letter in May 2013 revealed that the fund had exposure to approximately 64 million shares valued at over 115 billion Japanese yen ($1.1 billion) through 71 billion Japanese yen ($700 million) in direct ownership and 44 billion Japanese yen ($440 million) in cash-settled swaps.
Although Sony rejected the activist fund’s proposal, it cut costs in the entertainment business, improved its dialogue with investors, and undertook key management changes. Despite changes such as the sale of Sony’s VAIO computer division, Third Point asserted, “they have a long way to go and we continue to believe that more urgency will be necessary to definitively turn around the company’s fortunes.”
Sony’s consumer electronics business sees competition from Panasonic Corporation (PCRFY), LG Electronics (LGEAF), and Samsung Electronics Ltd (SSNLF). The smartphone segment sees competition from Apple Inc. (AAPL) and Samsung. In July, Sony slashed its smartphone sales forecast to 43 million units for the year, down from an earlier projection of 50 million units.
Generated 20% return on its investment in Sony
Third Point said it generated around a 20% return on its investment in Sony despite enduring profit warnings, falling sales at the consumer electronics business, and the sluggish pace of Japanese macroeconomic reforms.
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