Third Point Takes Aim at Sony in Investor Letter

The activist investor Daniel S. Loeb is turning up the heat on Sony.

Mr. Loeb, who runs the hedge fund Third Point, initially took a deferential approach when he disclosed a roughly 6.5 percent stake in Sony and called for a breakup of the company in May.

But Third Point dispensed with the niceties on Monday, taking aim at the company’s entertainment division in pointed language that recalled the acid dispatches on which Mr. Loeb made his name. Sony continues to pursue a strategy of unity, despite Mr. Loeb’s proposal that it spin off part of its entertainment arm.

“Keeping entertainment underexposed, undervalued and underperforming is not a strategy for success,” Third Point said in its second-quarter letter to investors on Monday, referring to the entertainment division.

“Given entertainment’s perpetual underperformance, perhaps Sony’s reluctance to discuss it candidly stems from (understandable) embarrassment,” the hedge fund said.

Shares of Sony were down 3.6 percent in Tokyo on Monday, a day when the Nikkei 225 index declined 3.3 percent.

A spokeswoman for Sony Pictures Entertainment declined to comment on Third Point’s letter.

The discussion of Sony came as Third Point reported its quarterly results to investors. The firm’s offshore fund was up 3.3 percent in the second quarter, and up 12.6 percent for the year through June 30, the letter said.

Separately in the investor letter on Monday, Third Point laid out an optimistic argument about CF Industries, a giant fertilizer manufacturer. Saying CF Industries trades at an “unwarranted discount” to its rivals, the hedge fund argued that the company should pay a large dividend to shareholders.

“CF has been underperforming recently despite the emergence of several positive indicators,” the hedge fund said. “This underperformance reinforces our view that a dividend strategy based on CF’s stable cash flow stream would lead investors to reassess the company’s valuation.”

Shares of CF Industries climbed 11.8 percent on Monday to close at $202.30 a share.

But when it came to Sony’s entertainment business, which includes a music label and a Hollywood film studio, Third Point’s tone was far less genial.

It is “perplexing” that Sony’s chief executive, Kazuo Hirai, was apparently not worried about two movies that had disappointing debuts at the box office, “After Earth” and “White House Down,” Third Point said.

In a particularly biting turn of phrase, the hedge fund said the movies were “2013’s versions of ‘Waterworld’ and ‘Ishtar.’”

Sony’s entertainment business in the United States is “being ineffectively overseen and needs its own governance structure led by a board whose job it will be to worry about such troubling results,” the hedge fund said.

Mr. Loeb’s hedge fund even criticized the entertainment division’s creative direction, saying it understood “anecdotally” that the “development pipeline is bleak.”

“We are also disappointed to see that Sony’s television business lacks new material and instead relies on old Merv Griffin Productions workhorses like ‘Jeopardy’ and ‘Wheel of Fortune,’” Third Point said.

The blunt language was a departure from the tone of Mr. Loeb’s original letter, in which he emphasized a “spirit of partnership.”

Still, Third Point said on Monday that it was pleasantly surprised by Sony’s electronics business, citing “visible improvement” in new products that “has caused us to rethink our approach” to valuing the division.

On a larger scale, Sony should benefit from political changes in Japan, including recent parliamentary elections that indicated support for the policies of Prime Minister Shinzo Abe, Third Point said.

The hedge fund also said in its letter that it managed to avoid some of the downdraft in stocks in May and June following comments by Ben S. Bernanke, the Federal Reserve chairman.