Sony rejects proposal to spin off entertainment unit

Sony said on Tuesday its board had "unanimously" decided to reject a US hedge fund's proposal to spin off part of its profitable entertainment arm. "The Sony board of directors has unanimously concluded that continuing to own 100 percent of our entertainment business is the best path forward and is integral to Sony's strategy," Sony president Kazuo Hirai said in a letter to US billionaire Daniel Loeb. "We ... will continue to give full consideration to any constructive feedback from our valued shareholders," Hirai said, promising to maintain "a productive relationship with you and welcome an ongoing dialogue". Loeb, who says his hedge fund Third Point has amassed the largest stake in Sony, called on the firm's executives to spin off up to 20 percent of the entertainment unit, which includes a music label and a Hollywood movie studio. Loeb, known for his aggressive style in stoking change at target firms, had argued the spin-off would make the entertainment unit's managers more accountable and help improve profitability. In a quarterly letter to investors last week, he said the division "remains poorly managed, with a famously bloated corporate structure, generous perk packages, high salaries for underperforming senior executives, and marketing budgets that do not seem to be in line with any sense of return on capital invested." He added that "drastic -- rather than incremental -- action is required". Sony's Tokyo-listed shares dropped 4.44 percent to 2,042 yen in morning trade while the benchmark Nikkei 225 index was down 1.31 percent. Sony's rejection came after the electronics giant said last week it had swung back to a net profit of $35 million for the April-June quarter, reversing a year-earlier loss as it boosted its annual sales forecast. It also saw a small operating profit in its dented television business and said smartphone sales were picking up. Sony and its domestic rivals have been undergoing painful restructuring aimed at stemming years of record losses largely tied to their struggling electronics units. The sector has faced serious challenges keeping up in the low-margin television business, while foreign rivals including Apple and South Korea's Samsung have blown past them in the lucrative smartphone sector. Japanese exporters have been given a much-needed boost since November as the yen has fallen about 20 percent against the dollar, making them more competitive overseas while inflating the value of repatriated foreign income.