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(The New York Times)   Hedge fund manager Daniel Loeb says Sony should break up for its own good...and may just have enough of a stake in the company to do it himself   (dealbook.nytimes.com) divider line 35
    More: Interesting, hedge fund managers, Sony, executive directors, Americans, Kazuo Hirai, Tokyo Stock Exchange, shot across the bow, Marissa Mayer  
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923 clicks; posted to Business » on 14 May 2013 at 10:19 AM (2 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-05-14 10:16:25 AM  
"Japan is a harmonious society which cherishes its social values, including full employment," he said in a speech last year. "That leads to conflicts in a world where shareholder value calls for ever greater efficiency."

When a hedge fund manager says something is for your own good, it's not for your own good.
 
2013-05-14 10:29:23 AM  

Mentat: When a hedge fund manager says something is for your own good, it's not for your own good.


That should be obvious, but FYI that wasn't the hedge fund manager; it was the CEO of Sony.  And frankly it's outrageous to the point of amusing that he's not even trying to hide his sociopathy.
 
2013-05-14 10:30:16 AM  
Can we start gathering these hedge fund managers and ship them off to a far away place where they can bask in their own self importance and leave us alone

/jus saying
//some people like hedge fund managers though
 
2013-05-14 10:32:37 AM  

Mentat: "Japan is a harmonious society which cherishes its social values, including full employment," he said in a speech last year. "That leads to conflicts in a world where shareholder value calls for ever greater efficiency."

When a hedge fund manager says something is for your own good, it's not for your own good.


Without context, its hard to get a read on what this guy is saying. Is he saying that Japan's social values should take second precedence to shareholder value and worker efficiency?

And I would be extremely skeptical when an investor comes to town wanting to split off a major asset to a company. Probably because he wants to only invest in the profitable part of the company, not the rest of it.
 
2013-05-14 10:49:34 AM  
It might not be a bad idea, despite the person calling for it.

Sony has for years had a lot of conflict between the entertainment side of their business and the electronics side of the business - many of their ridiculous proprietary and restrictive media formats - that were forced upon users of their electronics, leading to a nosedive in sales - were driven by the desire of the entertainment side to lock down content.

They were one of the last of the portable music player companies to embrace the mp3, requiring some ridiculous Sony-only format, and requiring software that at one point not only converted everything you owned to their DRM-laden format, but deleted the original mp3s, just at the behest of their entertainment division, and despite protests from the electronics division that people wouldn't buy it in that state.

A split between the two might actually allow each to do what it does best.
 
2013-05-14 10:50:06 AM  
Same idiots who thought breaking up IBM would be a good idea.  Thankfully, that didn't happen.
 
2013-05-14 10:50:45 AM  

imashark: Without context, its hard to get a read on what this guy is saying. Is he saying that Japan's social values should take second precedence to shareholder value and worker efficiency?

And I would be extremely skeptical when an investor comes to town wanting to split off a major asset to a company. Probably because he wants to only invest in the profitable part of the company, not the rest of it.


I've told this story before.  I read a book about the history of hedge funds a few months ago and there was one story of a manager who wanted to invest in German companies in the late 90's.  He was shocked because the company he was researching was more focused on sales than on profits and funneled their profits back into their business with the specific goal of using them for employee benefits.  In the words of the hedge fund manager, "these guys just don't get it."
 
2013-05-14 10:55:20 AM  

PsychoPhil: Same idiots who thought breaking up IBM would be a good idea.  Thankfully, that didn't happen.


Uh, except it has, just a lot slower. I don't recall seeing IBM laptops on the market any more.

G. Tarrant: Sony has for years had a lot of conflict between the entertainment side of their business and the electronics side of the business - many of their ridiculous proprietary and restrictive media formats - that were forced upon users of their electronics, leading to a nosedive in sales - were driven by the desire of the entertainment side to lock down content.


Sony's entertainment division has made some very poor choices when it comes to media formats and DRM. They were the ones involved in the whole rookit fiasco a while back. I see what they're trying to do (similar to what Apple does in customer lock-in using custom formats), it just seems like they've not been able to pull it off as subtlely as Apple.

I'm not sure how their strategy would change if the company split up, though.
 
2013-05-14 10:59:22 AM  

imashark: Mentat: "Japan is a harmonious society which cherishes its social values, including full employment," he said in a speech last year. "That leads to conflicts in a world where shareholder value calls for ever greater efficiency."

When a hedge fund manager says something is for your own good, it's not for your own good.

Without context, its hard to get a read on what this guy is saying. Is he saying that Japan's social values should take second precedence to shareholder value and worker efficiency?

And I would be extremely skeptical when an investor comes to town wanting to split off a major asset to a company. Probably because he wants to only invest in the profitable part of the company, not the rest of it.


You're almost right.
There are two paths to success in business, finding undervalued/poorly managed assets and restoring them to profitablity. Or looking at your undervalued/proorly managed assets, realizing that you can't turn them around and give them to somebody else.

The second path is much harder to pull off because that involes pride. Selling off an underperforming division is an admission of failure. Having some other business turn it around is a kick in the nuts. But despite those risks, it's always the right thing to do. It frees up your talented employees and capital to focus on new areas or to strengthen already successful areas.

In the case of Sony, they've been going from one farkup to the next for the last 20 some odd years. How in the hell did Sony lose their advantage in portable electronics? They should be competitive with Apple and Samsung (if not dominating).
 
2013-05-14 11:21:42 AM  
He says ... stay.

/only hears what he wants to.
 
2013-05-14 11:55:14 AM  
"Mr. Loeb [snip]  also signaled that he would accept a seat on Sony's board.  "

*Eyeroll.*

Frakkin' stoopit journalists, you've done been used.
 
2013-05-14 12:31:02 PM  

Mentat: imashark: Without context, its hard to get a read on what this guy is saying. Is he saying that Japan's social values should take second precedence to shareholder value and worker efficiency?

And I would be extremely skeptical when an investor comes to town wanting to split off a major asset to a company. Probably because he wants to only invest in the profitable part of the company, not the rest of it.

I've told this story before.  I read a book about the history of hedge funds a few months ago and there was one story of a manager who wanted to invest in German companies in the late 90's.  He was shocked because the company he was researching was more focused on sales than on profits and funneled their profits back into their business with the specific goal of using them for employee benefits.  In the words of the hedge fund manager, "these guys just don't get it."


And they didn't. I assume the hedge fund manager didn't invest, because his goal (and the goal of all for profit investors) of maximizing shareholder value differed from the company's apparent goal of enriching employees at the expense of shareholders.
 
2013-05-14 12:35:55 PM  

G. Tarrant: It might not be a bad idea, despite the person calling for it.

Sony has for years had a lot of conflict between the entertainment side of their business and the electronics side of the business - many of their ridiculous proprietary and restrictive media formats - that were forced upon users of their electronics, leading to a nosedive in sales - were driven by the desire of the entertainment side to lock down content.

They were one of the last of the portable music player companies to embrace the mp3, requiring some ridiculous Sony-only format, and requiring software that at one point not only converted everything you owned to their DRM-laden format, but deleted the original mp3s, just at the behest of their entertainment division, and despite protests from the electronics division that people wouldn't buy it in that state.

A split between the two might actually allow each to do what it does best.


This.  Since the 90s stagnation in Japan there has been numerous people calling for the breakup of the various Zaibatsu.  While they were great for rebuilding the country in the 50s and 60s, they've lost their way and are drifting.  Their management have too many different problems to think about and are too slow to react in any one place.  And given the culture of decision making in Japan, smaller companies can get to consensus much faster.  When upper management has too many different things to contemplate, you get gridlock - they just can't focus so things stagnate.  The synergies created from having the music, movie, games and consumer electronics all together isn't big enough to overcome the complexity of feeding each of those businesses.

When global competition operated in the multiyear cycles it used to, that decision making slowness wasn't too big of a problem.  Now, it is deadly.  But culture changes are hard to do, even in small groups, and take generations.  When the culture itself is one of consensus, it takes even longer to change.

Sony's numbers: (all approximate)  $80B/year in revenue, $160B in assets, $18B in market value, just under $18B in debt.  If this was a US company, these numbers would be screaming "Break Up!".  Because if they didn't do it themselves spontaneously, it would take about 5 minutes before GS, JPM and C kicked in $5B each, replace the board, split up the company, sell some of those assets in a restructuring and walk way with at least a doubling of their money in a month.  For conglomerates that work, their market value is something above their annual revenue.  This one isn't working.
 
2013-05-14 01:03:58 PM  

Uzzah: He says ... stay.

/only hears what he wants to.


I am glad I am not the only person to go there.... actually hoping for pictures.
 
2013-05-14 01:09:02 PM  
FTA:  But Mr. Kambe also pointed to repeated assertions by Sony's chief executive, Kazuo Hirai, that Sony Entertainment contributes significantly to the overall company and is not for sale.

He didn't suggest selling Sony Entertainment... he is looking to sell off their crap PC/TV business. You get better market cap and investment levels with high margins and large revenue growth. The movie and music industry has that. Commodity electronics doesn't. The stockholders would get really rich if Sony divested its bad assets.

And really what is gained by the movie and music arm by being attached to the electronics hardware arm? I doubt the singers are recording in the same Foxconn buildings where the PS4 is being assembled.
 
2013-05-14 01:10:33 PM  

PsychoPhil: Same idiots who thought breaking up IBM would be a good idea.  Thankfully, that didn't happen.


IBM sold off their PC wing long ago. They focus entirely on services and are very close to jettisoning parts of their remaining hardware portfolio. Most of their programmers in the USA are getting laid off in the next couple of years.
 
2013-05-14 01:16:11 PM  

MadHatter500: Sony's numbers: (all approximate)  $80B/year in revenue, $160B in assets, $18B in market value, just under $18B in debt.  If this was a US company, these numbers would be screaming "Break Up!".  Because if they didn't do it themselves spontaneously, it would take about 5 minutes before GS, JPM and C kicked in $5B each, replace the board, split up the company, sell some of those assets in a restructuring and walk way with at least a doubling of their money in a month.  For conglomerates that work, their market value is something above their annual revenue.  This one isn't working.


Nice, someone who knows what they're talking about on Fark.
 
2013-05-14 01:30:00 PM  

Bullseyed: FTA:  But Mr. Kambe also pointed to repeated assertions by Sony's chief executive, Kazuo Hirai, that Sony Entertainment contributes significantly to the overall company and is not for sale.

He didn't suggest selling Sony Entertainment... he is looking to sell off their crap PC/TV business. You get better market cap and investment levels with high margins and large revenue growth. The movie and music industry has that. Commodity electronics doesn't. The stockholders would get really rich if Sony divested its bad assets.

And really what is gained by the movie and music arm by being attached to the electronics hardware arm? I doubt the singers are recording in the same Foxconn buildings where the PS4 is being assembled.


What

FTFA: The hedge fund manager, Daniel S. Loeb, is pressing Sony to spin off part of its entertainment arm, which includes one of the biggest film studios in Hollywood and one of the largest music labels in the world, responsible for movies like "Skyfall" and artists like Taylor Swift.

He wants to sell some parts of the entertainment arm, the insurance and real estate arm (which was what made them profitable) and instead concentrate on electronics which have a higher margin.

Basically he wants to game the stock by inflating indicators without actually improving the business.  One thing analysts look at is P/E ratio and some of their entertainment division have a really low ratio even if they are ultimately profitable.  Getting rid will inflate the P/E ratio and the stock price giving our hedge fund manager a nice return.

Of course that might not be in the long term interest of the company but the stock market is now about the short-term.
 
2013-05-14 01:38:22 PM  

Faddy: Basically he wants to game the stock by inflating indicators without actually improving the business.


That's what hedge fund managers do.  If you put a bunch of hedge fund managers into a lifeboat in the ocean they'd try to find ways to monetize the planks under their feet.
 
2013-05-14 01:42:38 PM  
Sony's got major issues, but I don't think separating the profitable areas like music, movies, and banking, from the electronics area will benefit them.

What they need to do is make their current HDTV line up worth a damn, get the price down on their amazing 4k sets to a reasonable level (currently, about $6k a pop), get a winner in the ps4 generation wise, finally advertise and price drop the Vita, and reduce the number of redundant models in the rest of their electronics areas.
 
2013-05-14 01:52:10 PM  

Bullseyed: FTA:  But Mr. Kambe also pointed to repeated assertions by Sony's chief executive, Kazuo Hirai, that Sony Entertainment contributes significantly to the overall company and is not for sale "RIIIIIIIIIIIIIIIIIIIIIIIIIIIIDGE RACER!".


/had to
 
2013-05-14 02:05:41 PM  

Debeo Summa Credo: And they didn't. I assume the hedge fund manager didn't invest, because his goal (and the goal of all for profit investors) of maximizing shareholder value differed from the company's apparent goal of enriching employees at the expense of shareholders.


This attitude is killing Western prosperity.
 
2013-05-14 02:26:29 PM  

Sergeant Grumbles: Debeo Summa Credo: And they didn't. I assume the hedge fund manager didn't invest, because his goal (and the goal of all for profit investors) of maximizing shareholder value differed from the company's apparent goal of enriching employees at the expense of shareholders.

This attitude is killing Western prosperity.


No, it is the attitude that caused western prosperity. Nobody starts a business to create jobs. They start a business to make money. Demand for labor (or any other cost of business) is incidental. Beneficial in the case of labor and others, but incidental nonetheless.
 
2013-05-14 02:29:02 PM  

MadHatter500: G. Tarrant: It might not be a bad idea, despite the person calling for it.

Sony has for years had a lot of conflict between the entertainment side of their business and the electronics side of the business - many of their ridiculous proprietary and restrictive media formats - that were forced upon users of their electronics, leading to a nosedive in sales - were driven by the desire of the entertainment side to lock down content.

They were one of the last of the portable music player companies to embrace the mp3, requiring some ridiculous Sony-only format, and requiring software that at one point not only converted everything you owned to their DRM-laden format, but deleted the original mp3s, just at the behest of their entertainment division, and despite protests from the electronics division that people wouldn't buy it in that state.

A split between the two might actually allow each to do what it does best.

This.  Since the 90s stagnation in Japan there has been numerous people calling for the breakup of the various Zaibatsu.  While they were great for rebuilding the country in the 50s and 60s, they've lost their way and are drifting.  Their management have too many different problems to think about and are too slow to react in any one place.  And given the culture of decision making in Japan, smaller companies can get to consensus much faster.  When upper management has too many different things to contemplate, you get gridlock - they just can't focus so things stagnate.  The synergies created from having the music, movie, games and consumer electronics all together isn't big enough to overcome the complexity of feeding each of those businesses.

When global competition operated in the multiyear cycles it used to, that decision making slowness wasn't too big of a problem.  Now, it is deadly.  But culture changes are hard to do, even in small groups, and take generations.  When the culture itself is one of consensus, it takes even longer to change.

Sony's numbers: (all approximate)  $80B/year in revenue, $160B in assets, $18B in market value, just under $18B in debt.  If this was a US company, these numbers would be screaming "Break Up!".  Because if they didn't do it themselves spontaneously, it would take about 5 minutes before GS, JPM and C kicked in $5B each, replace the board, split up the company, sell some of those assets in a restructuring and walk way with at least a doubling of their money in a month.  For conglomerates that work, their market value is something above their annual revenue.  This one isn't working.


Their book value as of year end is only about $19b. I think you forgot to mention all the other liabilities.
 
2013-05-14 02:54:54 PM  

Faddy: Of course that might not be in the long term interest of the company but the stock market is now about the short-term.


One reason that JP Morgan (I think) said the only financial report he owed his shareholders was a dividend check. If they didn't like it, they could sell.
 
2013-05-14 03:42:51 PM  

Debeo Summa Credo: No, it is the attitude that caused western prosperity.


You're only half right. Desire for money is certainly a good motivator, but prizing it above all else is ruinous. If success (and money) are held apart from the society that enabled it, that society eventually crumbles and so too does the success it helped make possible.
America was at her most prosperous when capitalism was tempered with restraint.

I could also say capital is nothing without labor, or at least they are of equal importance. Valuing capital more highly is madness. It produces nothing on its own.
 
2013-05-14 07:38:42 PM  

Debeo Summa Credo: And they didn't. I assume the hedge fund manager didn't invest, because his goal (and the goal of all for profit investors) of maximizing shareholder value differed from the company's apparent goal of enriching employees at the expense of shareholders.


Yeah, because what do the Germans know about running successful businesses?
 
2013-05-14 09:05:12 PM  
How many companies that resulted from break-ups are successful? Can you name even one?
 
2013-05-14 09:15:18 PM  

MrEricSir: How many companies that resulted from break-ups are successful? Can you name even one?


Every version of Standard Oil?
 
2013-05-14 09:15:53 PM  

Mentat: MrEricSir: How many companies that resulted from break-ups are successful? Can you name even one?

Every version of Standard Oil?


Morgan Stanley?
 
2013-05-14 09:18:17 PM  

Mentat: imashark: Without context, its hard to get a read on what this guy is saying. Is he saying that Japan's social values should take second precedence to shareholder value and worker efficiency?

And I would be extremely skeptical when an investor comes to town wanting to split off a major asset to a company. Probably because he wants to only invest in the profitable part of the company, not the rest of it.

I've told this story before.  I read a book about the history of hedge funds a few months ago and there was one story of a manager who wanted to invest in German companies in the late 90's.  He was shocked because the company he was researching was more focused on sales than on profits and funneled their profits back into their business with the specific goal of using them for employee benefits.  In the words of the hedge fund manager, "these guys just don't get it."


What is the name of this book?  I'd like to read it.
 
2013-05-14 09:18:18 PM  

Mentat: Debeo Summa Credo: And they didn't. I assume the hedge fund manager didn't invest, because his goal (and the goal of all for profit investors) of maximizing shareholder value differed from the company's apparent goal of enriching employees at the expense of shareholders.

Yeah, because what do the Germans know about running successful businesses?


Probably more since the hedge fund managers showed up in the 1990s and they improved competitiveness:

http://mobile.businessweek.com/articles/2012-08-08/parts-of-europe-ha v e-quietly-become-competitive
 
2013-05-14 09:58:19 PM  

Debeo Summa Credo: Probably more since the hedge fund managers showed up in the 1990s and they improved competitiveness:


What part of that article supports your assertion?
It makes no mention of hedge fund managers. Or was I supposed to infer that by the suggestion decreasing labor costs automatically equal increased efficiency?
 
2013-05-14 11:16:55 PM  

LoneCraneFullMoon: Mentat: imashark: Without context, its hard to get a read on what this guy is saying. Is he saying that Japan's social values should take second precedence to shareholder value and worker efficiency?

And I would be extremely skeptical when an investor comes to town wanting to split off a major asset to a company. Probably because he wants to only invest in the profitable part of the company, not the rest of it.

I've told this story before.  I read a book about the history of hedge funds a few months ago and there was one story of a manager who wanted to invest in German companies in the late 90's.  He was shocked because the company he was researching was more focused on sales than on profits and funneled their profits back into their business with the specific goal of using them for employee benefits.  In the words of the hedge fund manager, "these guys just don't get it."

What is the name of this book?  I'd like to read it.


It's called More Money Than God by Sebastian Mallaby.
 
2013-05-15 02:10:40 AM  

Mentat: Mentat: MrEricSir: How many companies that resulted from break-ups are successful? Can you name even one?

Every version of Standard Oil?

Morgan Stanley?


Verizon?
 
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