Sony said it would consider spinning off and relisting shares of its financial services arm to bolster investments in its entertainment business, delighting investors with a U-turn in strategy.
Shares in the Japanese group rose 6.4 per cent on Thursday as investors welcomed the move as a way to unlock value in the Japanese conglomerate. Sony plans to retain a stake of about 20 per cent and target a timeframe of two to three years for the listing.
Three years ago, Sony spent $3.7bn to take full control of its financial unit, which houses the group’s online banking and insurance businesses, despite pressure from US activist investor Third Point to break up and focus on entertainment.
But at a news conference, Sony’s newly appointed president Hiroki Totoki said a partial spin-off of its financial arm was necessary to strengthen its investment capacity.
“In order to expand our growth over the medium to longer term, we will need the ability to invest in image sensors and the entertainment business at a completely new level,” Totoki said.
In the past five years, Sony has gone on an acquisition spree to expand its entertainment assets, buying EMI Music Publishing for $2.3bn and spending $1.2bn to acquire AT&T’s anime streaming service Crunchyroll.
Totoki said Sony would make use of a government scheme that allows companies to break up their units without incurring additional tax burdens.
Companies in Japan have come under increasing pressure from activist investors and the Tokyo Stock Exchange to improve governance and capital efficiency.
Japan’s stocks have been propelled by growing hopes of higher governance standards, larger share buybacks and other value-boosting measures. On Thursday, the benchmark Topix index was at a 33-year high, up more than 15.5 per cent since the start of the year.
David Gibson, a longtime Sony analyst at MST Financial, said the move was consistent with the company’s plans to scale up its investment in image sensors and entertainment. He said the eventual initial public offering of Sony Financial was likely to be used to help fund “aggressive merger and acquisition” activity by the company.
“Consolidation in entertainment has been happening and Sony doesn’t want to be left behind,” he added.
Macquarie analyst Damian Thong called the latest decision by Sony “an excellent move”, saying “it is good that Sony is able to change course when new opportunities present themselves”.
Many investors questioned Sony’s original decision to take full control of its financial business in 2020, noting the lack of synergy with the group’s other businesses.
At the time, executives explained that the diversity of its business portfolio was a strength for Sony.
“It probably removes a bit of conglomerate discount,” said a major Sony shareholder. “It’s not a massive game changer, but I think it is incrementally the right decision.”