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By Svea Herbst-Bayliss
Daniel Loeb's activist hedge fund Third Point LLC called on Sony Corp on Thursday to spin off its semiconductor business and sell off stakes in Sony Financial and other units, in order to position itself as a leading global entertainment company.
This marks the second time in six years that Loeb, one of the world's highest-profile activist investors, has targeted the Japanese electronics maker.
Reuters reported in April that Third Point was once again targeting Sony. Its stake in the company is now worth $1.5 billion, Third Point said in a letter to investors.
In a 102-page presentation, the New York-based hedge fund also said Sony's stock was undervalued in part because of its complex structure, and urged bold action by management to simplify it.
The semiconductor division is "often treated by investors as an afterthought" and should be spun off into a Japan-listed company called Sony Technologies, Loeb said.
While Japan pioneered the semiconductor industry, other Asian countries have eaten into its market share even as Sony has "held its own," Loeb told investors in the letter.
"New Sony" would become a creative entertainment leader with gaming, music, pictures and electronics businesses, he said.
Sony should also consider selling stakes in Sony Financial Holdings Inc, M3 Inc, Olympus Corp and Spotify Technology SA, Third Point wrote.
By selling off these stakes, Third Point said Sony could "meaningfully reduce complexity" that has been a major negative factor in the company's valuation.
Sony declined to comment.
Loeb threw his weight behind Sony Chief Executive Kenichiro Yoshida, saying he could create a "Stronger Sony" by shifting his focus to unlocking the value of its assets.
So far the relationship has been cordial and the two sides met in New York last week, when Loeb and several colleagues walked Sony executives, including Yoshida, through the presentation and the hedge fund's thinking.
For weeks, rumors had surfaced about what Loeb might want Sony to do and how Sony would respond. So far Sony has not given any indication of how and when it may react to Third Point's suggestions.
When Loeb first approached Sony in 2013, he built a position of roughly $1 billion and hand-delivered a letter to chief executive Kazuo Hirai, calling on the company to spin off part of its entertainment arm. He walked away with a 20 percent gain on his investment, he has said publicly, regretting that he missed out on bigger gains.
Six years later, Hirai has stepped aside as CEO at Sony and a number of tax regulations have changed in Japan, making it more attractive for companies to potentially spin off businesses that don't fit together well.
Loeb is also arriving anew amid a fresh wave of activism in Japan where investors like ValueAct, King Street Capital Management and Fir Tree Partners have pushed for change at Olympus Corp, Toshiba Corp and Kyushu Railway Company.
Japanese companies accustomed to their ways are often reluctant to succumb to investor pressure. However, Loeb is no stranger to challenging companies with long odds of success. Last year, he sought to oust the entire board of Campbell Soup Co, despite the founding family's members controlling much of the U.S. food company. He ended up settling for two board seats.
Third Point returned 9 percent in the first quarter of 2019 fueled largely by gains at Nestle, which was publicly critiqued by the hedge fund in 2018 for its "muddled strategic approach."
(Reporting by Svea Herbst-Bayliss in New York; Editing by Richard Chang and Leslie Adler)