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Change at Sony: Start of Third Leg of Abenomics?

Wednesday, 15 May 2013 | 12:54 AM ET
David Paul Morris | Bloomberg | Getty Images

Calls by an American billionaire investor for a break-up of Sony could mark the start of the third leg of Japanese Prime Minister Shinzo Abe's radical economic policies: shaking up corporate Japan by removing regulations that have hurt profitability and held back restructuring.

Hedge fund manager Daniel Loeb met Sony executives in Japan this week to personally deliver a letter in which he pressed the Japanese entertainment and electronics giant, famous for the Walkman and PlayStation, to spin off part of its entertainment arm and insurance division.

(Read More: American Investor Targets Sony for a Breakup)

Loeb, whose hedge fund Third Point is one of Sony's biggest shareholders with a stake of about 6.5 percent, has publicly expressed his interest in Japan and was reported saying last week that the economic policies being implemented by Abe could be a "huge game changer."

Analysts say the interest shown by a prominent overseas investor in Japan marks confidence in Abe's economic policies, often referred to as "Abenomics," and could spur momentum in the third and final leg of that policy.

Progress has been made on the two other fronts – implementing a radical monetary policy and heavy stimulus spending by the government – but to really revive Japan's economy, long-term structural changes are necessary, Japan watchers say. 100615403

"What the Sony story tells us is that private sector investors outside Japan are saying look, Prime Minister Abe has run a good race for you, so has the BOJ [Bank of Japan]. So, the first two legs of the relay have been good, now they're passing on the baton to you – how about you pick it up and run with it?," said Vishnu Varathan, Market Economist at Mizuho Corporate Bank.

All Change

Abe came to power in December with a promise to revive a moribund economy and end years of deflation. The yen has shed 19 percent of its value versus the dollar this year while Japanese shares have soared more than 40 percent on renewed optimism about Japan's outlook.

(Read More: Don't Stand in the Way of the Nikkei Train)

"The Japanese area is a fantastic area to be buying in. Government change with the devaluing of the yen is going to unlock the levels equities are currently trading at and that is where is opportunity is," Ryan Mendy, chief operating officer of the Spinoff Report told CNBC on Tuesday.

Changes at Sony could herald similar overhauls at other Japanese technology firms that have been struggling to spur growth, like Sharp and Panasonic, he added.

Abe has pledged structural reforms but there is also pressure on corporate Japan to restructure and close down unprofitable businesses.

"The balanced view is that the government will be cautiously optimistic about what's happening at Sony. They might see Loeb's move as an endorsement of their policy and a show of confidence. For the corporates themselves they would take it with a pinch of salt, as investors look for different things," said Varathan at Mizuho. "So corporates would need to communicate a medium-term strategy that is in line with Abenomics and which is also in line with investors' wish-list."

Opportunity

Sony gets that opportunity next week when it is due to outline a turnaround. Last week, the firm posted its first annual profit in five years but analysts attribute the result mostly to the weakness in the yen and some belt-tightening measures. Sony needs to do more if it wants to stay the race against rivals Apple and Samsung, they added.

Investors appeared to agree with Leob's call to break-up Sony, pushing up the company's shares more than 11 percent in Tokyo on Wednesday.

(Read More: Loeb's Move on Sony: Did Traders Have Advance Word?)

"What we're seeing in Japan, in Sony, is a rediscovery of value. Loeb is advocating an unlocking of value in a great brand," Glen Wood, head of sales, global at Mitsubishi UFJ Morgan Stanley Securities told CNBC's "Cash Flow."

"What Loeb says, is: let's look at where the value is and separate that piece and see what it's true value is after that. That makes sense; [but] whether it's plausible with Sony and Japan remains to be seen," he said.


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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.

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