Mr. Pink’s New Script for Sony

Next month is the 34th anniversary of a cultural watershed: the debut of the Sony Walkman. The Walkman made music portable and personal. It made possible everything that followed — the iPod, the iPhone, the Google Glass.

What followed wasn’t particularly nice for Sony (NYSE: SNE), as US upstarts like Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) turned it into an afterthought and an also-ran.

The company still makes nifty gadgets, notably the PlayStation line of gaming consoles. But it had lost money for four years running before eking out a small profit in the most recent year.

And the stock, which briefly popped to more than seven times the current price during the dot-com bubble craze, has been road kill for years, losing nearly two-thirds of its value since 2007. You can buy it now for less than it fetched in August 1988, when Japan was going to own the world and all those Walkmans were blaring Michael Jackson’s “Bad.”

But you would have to pay a hefty 23 percent premium over what Sony was worth at the end of April. Two developments appear to have turned the tide.

One was the aforementioned profit for fiscal 2013, driven by the rapidly depreciating yen, the related surge in Japanese stocks (profiting Sony’s insurance unit) and restructuring that cut losses on poorly selling TVs while divesting real estate holdings and chemicals operations.

Two, Mr. Pink decided he wanted to play Commodore Perry. Mr. Pink is the self-appropriated nickname of Daniel Loeb, the celebrity manager of the Third Point hedge fund. Like the 19th century naval commander who bullied isolationist Japan, Loeb went to Tokyo this week with a letter demanding change.

Instead of warships, Loeb’s only leverage lies in his newly unveiled 6.5 percent stake in Sony, a billion-dollar bet that makes him the company’s largest shareholder.

Of course, where Perry sought a change in national policy and mindset, Loeb’s stated goals are much more modest. He’s merely urging Sony to spin-off 15 to 20 percent of its Sony Entertainment US media holdings, including film studios (“Skyfall,” “Spider-Man”), music labels (Bruce Springsteen, One Direction) and television production (“Breaking Bad.”)

Divesting a portion of these cash cows would allow Sony to invest in an overhaul of its money-losing electronics units while unlocking enough value to propel Sony’s shares as much 60 percent higher, Loeb argued in his letter.

He also wants Sony to stop wasting money and energy on PCs, DVDs and commodity semiconductors and focus on the PlayStation, along with its fast growing smartphone and image sensor product lines.

Loeb hand-delivered his prescriptions to Sony CEO Kazuo Hirai, the man who made the PlayStation a household word and was named a year ago to rescue the company shortly before it posted a mammoth  $5.7 billion annual loss.

Hirai responded tersely via press release that “the entertainment businesses are important contributors to Sony’s growth and are not for sale” and that the company plans on “continuing constructive dialogue with our shareholders as we pursue our strategy.”

In other words, we’ll let you know, Mr. Pink, when next we need your counsel. The history of shareholder activism in Japan is littered with well-laid plans of big shots who got nowhere. Japanese courts have upheld the use of poison pill defenses to ward off meddlesome foreigners.

And nothing in the deregulation and corporate reform drive advocated by Japan Prime Minister Shinzo Abe and heavily referenced by Loeb in his letter requires Japanese mutinationals to take instruction from American hedge funds.

Which is beside the point, because the other “arrows” of Abe’s agenda, the heavy monetary and fiscal stimulus, provide a powerful tailwind for Sony in the form of further yen depreciation.

This is good not only as a currency boost on the bottom line but as a competitive edge powering the Japanese stock rally and, ultimately, as a spur to domestic demand. Japan’s GDP grew at a 3.5 percent annualized rate in the first quarter, and private consumption contributed two-thirds of the total.

Loeb’s timing also anticipates what should be a lucrative launch of the PlayStation 4 later this year, and Sony’s forecast that its deadweight TV business will finally turn a profit this year for the first time in a decade.

So Loeb doesn’t have to get a real hearing to win, much less receive the Sony board seat he requested. All he has to do is sit back and watch Hirai’s own restructuring plan succeed (in which case Loeb will get richer) or fail (which would make Loeb more influential.)

The US media properties are valuable to be sure, but their profits have enabled Sony to put off hard decisions in its core electronics business for too long.

It must be galling to the longtime shareholders to watch Apple and Samsung make billions off gadgets while Sony’s dabbling in same must be supported as a hobby by boy bands and Hollywood thrillers.

Loeb’s just offered them a new spec script, and it has the look of a blockbuster.