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Technology

Third Point ramps up pressure on Sony to spin off chip business

Activist fund also raises concern over Japan's tougher foreign investment rules

Sony has rebuffed Third Point's appeal to spin off its semiconductor segment due to the anticipated demand from 5G mobile phones.   © Reuters

NEW YORK -- U.S. hedge fund Third Point has reiterated calls for Sony to spin off its chip segment and sell holdings in other units deemed a drag on corporate value, setting up a potential showdown at the next shareholders meeting.

Daniel Loeb's activist fund, which held a $1.5 billion stake as of June, outlined the need for an overhaul of Sony's business profile in an investor letter dated Thursday. The Japanese technology group's share price has jumped nearly 40% since the end of June.

"While business performance has been stellar, we believe true value maximization at Sony is only beginning,"  Third Point said in the letter, pointing to the need to offload peripheral operations.

The call for Sony to streamline its business follows another letter sent in June, when Third Point said: "Sony's valuation discount is attributable primarily to portfolio complexity" created by fielding a number of dissimilar segments. Not only did the fund advocate spinning off the semiconductor unit, it recommended divesting shares in the listed subsidiary Sony Financial Holdings.

Sony ultimately rejected both of Third Point's June proposals in September, saying the diversity was its strength. Although Sony sold shares it held in Olympus in a transaction completed in August, Third Point indicated the move did not go far enough.

The letter also cited Japan's Foreign Exchange and Foreign Trade Act, which places stricter rules on foreign investment in sensitive industries. "One effect the bill clearly could have is to make it more difficult for engaged shareholders to build positions," Third Point said.

Third Point expressed hope that the recently passed legislation will not contribute to a reversal of corporate governance reforms. Japan's Ministry of Finance rejects the view that the new rules would shut out activists.

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