Sony will make listed subsidiary Sony Financial Holdings a wholly owned unit for 400 billion yen ($3.73 billion) as it follows global tech giants Alibaba Group Holding and Apple in turning to finance as a stable profit generator that performs even during crises like the current pandemic, Sony announced Tuesday.
The Japanese electronics and entertainment group intends to combine its artificial intelligence and other technologies with the expertise of Sony Financial, which has a bank as well as life and casualty insurers under its umbrella.
Low share prices due to the coronavirus-triggered economic downturn convinced Sony to act now.
Sony also announced on Tuesday that it would change the company name to Sony Group starting on April 1, 2021. The name of the intermediate holding company that bundles the electronics business, which includes TVs, will be changed to Sony.
"Our financial business has a value chain that starts and ends within Japan," Sony CEO Kenichiro Yoshida said at corporate strategy meeting on Tuesday in regard to integration with the financial subsidiary. "With heightening geopolitical risks, we thought it would be best to make this move. We also believe it will lead to long-term improvement of corporate value."
Sony, which owns about 65% of the financial unit, plans to buy the remaining shares through a tender offer. It is expected to pay about 2,600 yen per share, a premium of about 30% over Monday's closing price of 2,064 yen.
Sony Financial will be delisted after it becomes a 100%-owned subsidiary around this summer. The unit holds roughly 14.5 trillion yen in assets, making it the biggest domestic financial institution affiliated with a listed nonfinancial company.
Hiroki Totoki, Sony's chief financial officer, stated that making the financial unit a wholly owned subsidiary will "lead to merits, including tax effects, and will boost Sony's annual net profit about 40 billion to 50 billion yen after fiscal 2021."
Alibaba in China collects payment data through the Alipay app, used by more than 1 billion consumers. The company makes use of the data in a number of ways, such as scoring individual creditworthiness when considering loan applications. Apple last year introduced a branded credit card that can be used digitally.
Sony may be eyeing new insurance products down the road. In January it unveiled an electric vehicle at the CES convention in Las Vegas, in the U.S. state of Nevada, touting the EV's 33 sensors. An image recognition and other systems use some of those sensors to judge a driver's concentration and tiredness levels from facial expressions and gestures. It is possible to use this kind of data to price automobile insurance policies.
Sony's operating profit for the year ending March 2021 is expected to plunge at least 30% to around 590 billion yen. The electronics sector, including the TV business, has slumped due to the coronavirus outbreak. But the game and music businesses are generating stable profits through subscription models, which create steady revenue streams. Financial operations are seen producing stable income as well.
Sony's financial business produced 129.6 billion yen -- or 14% of total operating profit before transactions between segments are excluded -- for the year through March. Though this segment is a key driver of earnings after games, semiconductors and music, the stake held by minority shareholders means that more than 30% of earnings flows outside the group.
Sony Financial's share price was down about 20% on Monday from early February as the pandemic has hammered the overall stock market. Sony itself has been moving to secure cash by expanding its foreign-currency credit line, but the company also regards the financial unit's low stock price as a good opportunity to take full control.
Shares in both companies shot up during Tuesday's afternoon session following Nikkei's report. Sony closed 3% up at 6,902 while trade in Sony Financial's stocks has been suspended after a glut of buy orders pushed the share price nearly 17% higher than Monday's close.