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Sony rejects Dan Loeb's spin off proposal

Tuesday, 6 Aug 2013 | 2:00 AM ET
Kiyoshi Ota | Bloomberg | Getty Images

Sony has rejected Dan Loeb's call to spin off its entertainment business, the company said on Tuesday.

In a letter to Loeb's hedge fund Third Point, the Japanese electronics giant said the board and management team "strongly believe that continuing to own 100 percent of the company's entertainment business is fundamental to Sony's success."

(Read more: George Clooney rebuts Loeb's critique of Sony)

It also rejected the notion that a rights or public offering will boost profitability or shareholder value, and argued that the move " would create the need for otherwise unnecessary and burdensome arm's length intercompany relationships as a result of minority shareholder rights, thereby limiting Sony's control and strategic flexibility."

Since amassing 6.9 percent ownership of Sony through Third Point, Loeb has been increasingly critical of Sony's business, in recent weeks calling its entertainment division "poorly managed."

The billionaire activist has been pushing for a spinoff of Sony's money-making entertainment arm for months now, even as the Japanese firm battles to save its crumbling electronics empire, which has been plagued by stiff competition and lack of innovative products.

Analysts say Sony's rejection of the deal doesn't mean Loeb's going to back down from here.

(Read more: Change at Sony: Start of third leg of Abenomics?)

"I wouldn't call it [the deal] off immediately. There's going to be a lot of back and forth. Loeb is an activist investor that doesn't easily go away," aid King Lip, CIO at Baker Avenue Asset Management on CNBC's "Cash Flow."

Daniel Loeb won't give up so easily: Pro
King Lip, CIO at Baker Avenue Asset Management thinks Sony's decision to retain control of its entertainment business is not final. He also explains why investors should buy into the stock.

Industry watchers have taken side on the issue, which have drawn interest even from Hollywood celebrities.

Earlier this week, outspoken actor George Clooney came to Sony's defense, calling Loeb a "carpet bagger" who "knows nothing about" the film industry, in an interview with Deadline Hollywood.

According to Lip, Sony's CEO Kazuo Hirai, who took helm at the company a year ago, is slowing but surely turning Sony's business around.

Last week, the company said it returned to the black for the first time in three years in the second quarter, logging a net profit of 3.5 billion yen ($35 million) in the April-to-June quarter, compared to a 2.46 billion yen loss in the year ago period.

(Read more: Why Sony's profit turnaround may be 'one-off')

"I do believe the CEO is a doing a decent job in turning around the business and investors buying today are likely going to get a pretty decent returns going forward," Lip said. "I do think it makes sense for Sony to retain control of its business especially if the CEO is able to execute on his vision," Lip added.

Sony shares closed down nearly 5 percent in Tokyo on the news, but Lip is recommending a buy on the stock.

"I think there's a lot of value in the stock," he said. "Investors buying today are likely going to get a pretty decent returns going forward."

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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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