SONY.US (SONY.US) financial business will soon be independently listed: physical dividends will distribute more than 80% of the shares, and the reference price is 150 yen

Zhitong Finance App learned that a major spin-off plan for the global financial market has seen significant positive developments. The “reference price” of the financial business division (“Sony Finance”) under Sony Group Corp. (Sony Finance), a leader in the Japanese semiconductor and entertainment industry, was set at 150 yen (about 1 US dollar) by Nomura Securities (Nomura), a global stock market underwriting giant headquartered in Japan, at 150 yen (about 1 US dollar). This move shows that the Japanese semiconductor and entertainment leader is tightening its management and operating focus.

Nomura said that the spin-off listing price will be used as a reference by the Tokyo Stock Exchange to determine the benchmark for indicative prices before public listing begins. The spin-off plan is different from the initial public offering (IPO) price in the stock market. The reference value is not a direct reference indicator of the company's listed market value, and financial companies will not issue new shares after the spin-off.

Under Sony's spin-off model, the parent company allocates shares in existing subsidiaries (such as Sony's “physical dividends” this time), and usually does not raise capital or issue new shares; an IPO is the first time that a private company issues new shares to the public to raise capital, and the underwriter books, files, and issues them at a price. Also, a direct spin-off listing means there is no so-called “issue price”. The exchange refers to the reference price for price instructions before opening, and then the market price is formed by bidding; the reference price is not an indicator of valuation or market value.

Japan's largest tech giant plans to distribute more than 80% of the shares in the financial business unit to shareholders. The practice of a company retaining part of its shares after separating a business unit is called a partial spin-off model. Sony said this will be the first public listing transaction of this type in the Japanese market.

The goal of the “Sony Financial Group” after the spin-off is to list and publicly trade on the Tokyo Stock Exchange's Prime Market main board market on September 29. Prime Market, the main board of the Eastern Stock Exchange, is the top sector of the East Stock Exchange after the restructuring in 2022. It targets companies with large markets, high liquidity, and higher governance requirements.

The spin-off will mark the financial company's return to the stock market after Sony Group turned it into a wholly-owned subsidiary in 2020. Sony said at the time that the wholly-owned acquisition of one of its most profitable businesses was aimed at stabilizing its overall operations. The financial business company was founded in 2004 as a holding company, integrating its retail banking and insurance businesses.

Since this year, benefiting from the accelerated growth of the entertainment business sector and the attainment of tariffs better than market expectations between the US and Japan, the Sony Group's stock price has surged more than 30% in the Japanese stock market. Sony (SONY.US) US stock ADR has also risen strongly since this year, surpassing the S&P 500 index by surpassing the S&P 500 index by more than 39%.

Why is Sony splitting the financial business division?

For the Japanese tech giant Sony Group, the spin-off will undoubtedly bring more clear business boundaries and improve capital efficiency and valuation comparability. By divesting financial services such as life insurance, industrial insurance, and banking as a whole from a consolidated perspective, Sony will become a more “pure” entertainment+ technology platform (games, music, film, television, and semiconductors), which will help reduce “comprehensive enterprise discounts” and enhance capital efficiency and investors' valuation anchor for Sony's main business.

In particular, with regard to the semiconductor business, Sony's semiconductor business has long provided large smartphone manufacturers such as Apple (AAPL.US) with CMOS image sensors (CIS), which dominate the global image sensor field, and is currently increasing the layout of the autonomous driving sector. The Sony Group can be described as actively expanding the second performance growth curve recently.

In roadshows and media communications, Sony Group management repeatedly emphasized that this is the first “partial spin-off with a small share holders+direct listing” in Japan in nearly 20 years. The purpose is to improve shareholders' capital efficiency and strategic clarity, and the market has expressed positive feedback on this.

For the shareholders of the Sony Group, it can be described as directly obtaining independent shares in financial subsidiaries while retaining collaboration. The parent company Sony Group will distribute slightly more than 80% of Sony Finance (SFGI) shares as physical dividends to Sony shareholders, keeping only slightly less than 20%; SFGI plans to directly list on the main board of the Tokyo Stock Exchange on September 29. The listing uses reference prices rather than IPO prices, and will not issue new shares. All of this means not only “returning” value to shareholders, but also maintaining brand licensing and collaborative relationships (financiers will still use the “Sony” brand).

Furthermore, for the Sony Group's fundamental expectations, it is more reasonable to match the risk profile with the market's capital requirements. Sony's financial subsidiaries (insurance+banking) require large investment in IT and mergers and acquisitions in the medium to long term, and are affected by potential fluctuations due to mismatches in assets and liabilities such as interest rate/term; financial subsidiaries are more capable of independent listing and future self-financing, and have proposed a repurchase plan of about 100 billion yen until March 2027, which is beneficial to its independent capital market image and shareholder returns. The parent company, Sony Group, is concentrating its capital on the entertainment and semiconductor business segments with higher ROIC/growth.