Few foreigners attract more tricks at Sony than the American hedge fund manager Daniel Loeb.
Six years ago, the third-point investor activist asked that then CEO Kazuo Hirai sell the Sony film studio to focus on hardware and innovation. Hirai hesitated and Loeb sold his Sony stake within 18 months. "Champagne for everyone!" wrote the head of Sony Pictures' former finance in an e-mail leaked in 2014.
Now, Loeb is back to take two, and the odds are that Sony officials won't blow up the caps anytime soon.
In May 2013, when Loeb first showed Sony's radar, Hirai's team claimed they needed entertainment content to integrate with some game-editing devices that should have been named later. Six years later, Hirai is retired, investors are still waiting for that new platform and Loeb's fiction is becoming difficult to ignore.
All this time, Sony has teased with hints of another Walkman moment. He promised to remind Apple that Sony has more to offer than a PlayStation business that reaches the end of its cycle. Hence the return of Loeb with an I-tell-you-so investment, and this time it could have a happy ending. Competition from Netflix, Amazon and other film and television artists could force Sony to pay attention to reality.
Japan Inc., as an investor activist, also thrives to challenge the status quo.
The difference between today and 2013 is the push by Prime Minister Shinzo Abe to push investors to be more assertive. Along with the introduction of a British-inspired administration code in 2014, Abe encouraged national retail bettors to find their voices. Since then, requests to increase dividends, non-core spin-off activities, reduce cross-shareholdings and modify on-board structures have grown in terms of frequency and volume.
Not a revolution, but a clear progress. In 2018, 47 Japanese companies faced investor reform proposals, according to Activist Insight. This is a 40% jump from 2017.
The momentum seems set to grow ahead of a meeting with Monex Group, a securities broker based in Tokyo, scheduled for May 19th. The idea is to bring in funds from foreign and national activists along with Japanese retail investors. Times are not a coincidence: one month before the annual run of Japan Inc shareholder meetings.
Japan has seen countless false dawns on activism. What is noteworthy, however, is the way in which foreign investors also look beyond icons like Sony and camera manufacturer Olympus. Take the 5.1% stake in Fir Tree Partners in New York based in Kyushu Railway. Fir Tree started betting on the Western Japanese company in 2016 and quietly raised the stakes. Only in January did he reveal the extent of his bet.
Fir Tree's requests are quite typical of foreign activists: to pay more attention to shareholder returns; repurchase 15% of the outstanding shares; introduce a remuneration based on shares for the management. Still, Abe's corporate governance drive makes it easier for friendly managers and shareholders to surround wagons.
Last month, institutional investors called for the top management to be removed from Lixil Group, a manufacturer of housing products. The objectives of this extremely rare maneuver include CEO Yoichiro Ushioda amid allegations of opaque decision-making. Only time will tell if Marathon Asset Management, Indus Capital Partners and two other companies that are agitating for change make their way. But the genius seems out of the proverbial bottle.
The electronic group Maxell Holdings has its headaches with foreign and national funds, which have taken a 30% share. The same goes for Ricoh and Japan Display, in which probably the most famous Japanese activist, Yoshiaki Murakami, holds a stake. Through its Effissimo Capital Management based in Singapore, Murakami also has investments in Toshiba and Dai-ichi Life Holdings.
The coldness of Japan Inc. towards shareholders is under the assault from the bottom up, the Abe government, from bottom to top, home bettors and from outside. The non-Japanese funds obviously gain more attention. Historically, offshore activists have been demonized as "foreign vultures" who planned to pillage corporate icons.
Of course, hedge fund managers like Loeb are motivated by profit, not altruism. But stronger governance can be a victory for Japan's 126 million Japanese. Better managing companies that restore Japan's innovative greatness could create new jobs, raise living standards and increase the global influence of Tokyo, Osaka and other metropolises.
Unfortunately, Japanese company stocks have been discouraging recently. Carlos Ghosn's brawl with Nissan Motor has meant that the reputation of Japan's third largest car manufacturer is not favored. Nor have the scandals to Toshiba, Olympus and other household names reinforced Abe's reformist good faith in global markets.
However, the return of Loeb to Sony is a case in point. The innovative decline and complacency of Sony since the 80s is often considered a microcosm of Japan's journey. Like Japan, Sony has defined the global standard for inventiveness. He has lost his mojo and, like Abe's economy, is struggling to regain confidence. This makes it a proxy for national change.
Sony is really in the midst of a reversal effort, led by Kenichiro Yoshida. Prior to President Hirai, appointed Yoshida CEO in February 2018, Yoshida was Chief Financial Officer. He scrapped the personal computer business that loses money and took a scalpel against the beating TV unit. He announced large layoffs and a $ 1.7 billion devaluation on smartphones. Now, Yoshida is mulling even more substantial cuts into the mobile unit that loses money, including the shedding of 2,000 jobs.
Loeb wants Yoshida to go further. This includes the exploration of options for Sony Pictures, which could be ripe for an acquisition by Netflix or Amazon. Loeb also invites Sony to explain how its semiconductor and insurance divisions will boost future profits.
The size of the latest Sony episode of the New York activist has yet to be disclosed. The third point has about $ 14.5 billion in management. According to Reuters, it is creating a special investment vehicle to raise up to $ 1 billion to buy more Sony shares. The 9% rally only since Tuesday, however, suggests that investors are hoping that Loeb will be able to focus again on Sony.
Loeb is a regular feature in Japan Inc circles. He bet on everything from robot manufacturer Fanuc to Seven & i Holdings, to retailer and Suzuki Motor. The Sony sequel could hit the market at the right time. Loeb is joined by other global activists, including Argyle Street Management (pushing for change at Toshiba), Elliott Management (Japan Hotel REIT Investment), Oasis Management (electronics producer Alps Alpine) and others.
More importantly, these foreign funds could find unlikely allies among Japanese retail investors just as shareholders' annual general meetings begin. These local bettors are tired of being taken for granted and have a powerful ally in the prime minister.
Japan still has a long way to go to raise its corporate game to international standards. But in the end it seems that it is moving in the right direction and giving long-term shareholders a reason to put Champagne on ice.
William Pesek is a Tokyo-based journalist and author of "Japanization: What the World Can Learn from the Lost Decades of Japan". He was awarded the 2018 Excellence Award for writing the opinions of the Society of Publishers in Asia for his work Nikkei Asian Review.