Sony takes finance arm private for up to $3.7 Billion

Sony Corp. said it intends to take full control of its finance unit for about 395.5 billion yen ($3.7 billion), buying out one of its most lucrative businesses to inject more stability into a largely electronics and entertainment-focused operation.

The Japanese giant will offer 2,600 yen a share for the part of Sony Financial Holdings Inc. it doesn’t already own, it said in a statement Tuesday. That’s a premium of about 26% to Monday’s close. Shares in the finance unit surged 19% Tuesday, while Sony itself gained more than 3%.

Sony last week warned that operating profit could fall 30% or more this fiscal year because of the coronavirus pandemic’s impact on production and consumption. The financial services business, one of its most profitable, had seen a deterioration because its sales people can’t go out to pitch customers on insurance and other products, it said. The difficulty in projecting future performance for that unit affected Sony’s ability to give a companywide forecast for the year.

But the mainly Japanese-focused finance unit could help offset a wider operation vulnerable to global shocks, including an image sensor unit grappling with U.S.-Chinese trade tensions. Once wholly owned and controlled, the business could help raise the parent’s overall profit by 40 billion yen to 50 billion yen annually starting next fiscal year, the company said.

“The financial unit is based in Japan, and its profit stability will benefit Sony, as a global company, amid geopolitical risks,” Chief Executive Officer Kenichiro Yoshida told investors during Sony’s annual strategy briefing Tuesday. “The financial business is as important as our electronics and entertainment units, and we see long-term growth potential in the business.”

Yoshida has overhauled the technology icon in recent years to focus on franchises such as sensors for smartphone cameras and the PlayStation games business. Activist investor Dan Loeb has pushed for a sale of the finance operation but Yoshida has said the division, which sells insurance policies among other services, is integral to enhancing the company’s value.

The Tokyo-based company, also a major Hollywood entertainment producer, has been diversifying into banking since 2001. Sony Financial itself was set up in 2004 and at one point was expected to bring in the majority of the Japanese conglomerate’s operating profit.

“The move could help stabilize Sony’s profit even when electronics businesses are in trouble,” Morningstar Research analyst Kazunori Ito said. But “there’s no synergy between the domestic financial units and other arms.

Shares in potential candidates to take Sony Financial’s spot on the benchmark Nikkei 225 index climbed Tuesday after the report, including Japan Post Bank Co. and Seven Bank Ltd.