Sony to make case for finance arm spin-off in latest corporate transformation
TOKYO, May 27 Reuters) - Sony (6758.T), opens new tab will on Thursday lay out the growth strategy for its financial arm set for a spin-off that has been welcomed by investors as marking the latest chapter in the company's transformation.
The Japanese conglomerate, once best known for household electronics, has received plaudits for shifting its focus to entertainment, which totals more than 60% of sales.
The financial spin-off reflects the tangled path Sony has taken, coming just four years after it took full control of the business in a $3.7 billion deal.
Sony executives will address the spin-off and the financial unit's growth strategy at an investor day on Thursday.
The company plans to distribute just over 80% of its shares in Sony Financial Group, which includes banking and insurance, to shareholders through dividends in kind.
It is the first partial spin-off in Japan taking advantage of a 2023 tax change and the first direct listing - set for September 29 - in more than two decades.
In a direct listing a company lists on the stock market without a traditional initial public offering.
The spin-off will separate the balance sheets of the non-financial businesses, which seek capital and asset efficiency, and the financial business, which expands by accumulating capital, helping investors understand their aims, Sony said in response to questions from Reuters.
Compared with an IPO, the spin-off will allow a large-scale separation in a relatively short time with low risk, Sony said.
"The partial spin-off has finally become tax-free, aligning with Western practices and giving an option for large Japanese companies... to shrink their conglomerate discount," said Hideki Somemiya, chief financial officer of materials maker Resonac (4004.T), opens new tab, which aims to spin off its petrochemicals business in two years.
Sony will retain a stake of just under 20% with the financial business licensing its brand.
The Japanese company aims to expand its presence in entertainment, spanning from games to movies and music, and maintain its position as the leading manufacturer of image sensors, a type of semiconductor, for smartphones.
"It is necessary to invest in the manufacturing process," Sony CEO Hiroki Totoki said of its chips business this month.
"Whether we do this 100% by ourselves, bring in investment partners or adopt a fab-light type of strategy, there are a number of options," he said.
In addition to manufacturing image sensors, Sony has partnered with Taiwan Semiconductor Co Ltd (2330.TW), opens new tab on the contract chipmaker's Japan venture.
"Outsourcing some production to TSMC would be the most natural choice to bring down the cost burden and improve efficiency," said David Dai, an analyst at Bernstein.
Sony said this month it sees flat operating profit this financial year after factoring in a 100 billion yen ($701.16 million) hit from U.S. President Donald Trump's trade war.
The conglomerate, which booked record operating cashflow last year, has allocated 1.7 trillion yen to capital investments and 1.8 trillion yen to strategic investments in the three years to March 2027.
Sony is widely seen as looking to do deals to extend its access to intellectual property to fuel its entertainment business, with Japan one focus.
It bought a stake in Kadokawa (9468.T), opens new tab after considering an acquisition of the media powerhouse and also considered bidding for Paramount Global (PARA.O), opens new tab last year, Reuters has reported.
Sony is a rising force in anime with planning company Aniplex, which is under its Japan music arm, and the Crunchyroll streaming service, which is part of the pictures segment.
"It is still early days for us and the opportunity is massive, both because of the current size of the market and... the audience continues to grow," Crunchyroll CEO Rahul Purini said.
While growing rapidly, anime is yet to rival the scale of Sony's games, movies and music businesses, and the company does not break it out at earnings.
"It's not only profitable, it's lucrative," said Bernstein's Dai, who estimates anime will contribute 35% to 40% of the pictures business's profit in two to three years.
($1 = 142.6200 yen)
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