Can James Bond save Sony?

Sony Corp. is so set on a Hollywood ending to years of sliding share prices that it's casting two unlikely heroes to achieve it: James Bond and Rocky Balboa - reports Bloomberg.

Along with three other investors, Sony recently bid $12 a share, or about $3 billion, to acquire Metro-Goldwyn-Mayer Inc., the Los Angeles-based studio that released the ``James Bond'' and ``Rocky'' movies. MGM's vast catalog includes classics like ``The Wizard of Oz'' and ``Ben Hur.''

It's part of Sony's strategy of combining entertainment and technology businesses to spur growth and rely less on the tough consumer electronics market. It could be a wise move, considering the price competition from rivals that include Matsushita Electric Industrial Co., Samsung Electronics Co., Apple Computer Inc. and others.

More interesting than the purchase of MGM itself, though, is how Sony is going about it. It's quite a contrast from the Sony of 15 years ago and shows how the plot has changed for the second- largest consumer electronics maker.

What stands out is how modestly Sony is going after MGM. In the 1980s it grabbed prizes like Columbia Pictures in a huge -- and some would say hubristic -- leap into the U.S. film market.

This time Sony is seeking help. Why? Because its stock price is a mere shadow of what it was in early 2000 -- 3,740 yen a share now versus 16,300 yen a share then -- and it's already leveraged; Sony's debt is 6.71 trillion yen and counting. It has 406 billion yen worth of corporate bonds maturing in 2005 alone.

Docile Shareholders

In the old days, when shareholders were even more docile than they are today, Sony would sell new stock to pay for an acquisition like MGM. Investors could be excused for worrying that will happen this time, too. Yet Sony has learned something about the costs of socking it to investors.

Chief Executive Officer Nobuyuki Idei talks about the 500 people who attended the annual shareholders' meeting when he became president in 1996; this year more than 6,000 turned up. It means Sony now has little choice but to be more responsive to investors.

Instead of diluting the share price, Sony is getting the private equity folks to put up cash for MGM. The deal would give Sony access to a vast film library it could pipe into Sony Ericsson phones, Vaio computers or PlayStations nearest you. The earnings stream should be more predictable than that afforded by the consumer electronics business.

Sony has sought for years to be at the forefront of every business related to digital home entertainment. Generally, it's focused on grand, sweeping concepts. Unlike the late 1980s, when it snatched up Columbia, this time Sony doesn't have the resources to carry it out.

Sony's Partners

That's why Sony will share its cash offer and the burden of assumed MGM debt with partners Texas Pacific Group, Providence Equity Partners and DLJ Merchant Banking Partners. MGM, which is controlled by billionaire Kirk Kerkorian, says it will recommend the bid to the company's board.

The real question is whether Sony's approach to MGM says more about Sony's financial limitations than about concerns for shareholders. A test of that will be how docile Sony proves to be with its partners. According to a recent Newsweek article, Sony's co-investors are objecting to parts of the deal.

Newsweek, citing unidentified people familiar with the deal, said Texas Pacific Group and Providence Equity Partners, which will invest $750 million in total, want to structure the deal so they can quickly make a profit by cashing out. Sony's partners have insisted on other terms that appear to put Sony at a financial disadvantage, Newsweek reported.

Microcosm

Kerkorian, Newsweek said, wanted a nonrefundable deposit of $150 million up front for the film company, which Sony's partners made the Tokyo-based company pay. Indeed, how Sony plays the MGM deal will say much about the evolution of shareholder value at what's long been one of Japan's bellwether companies.

Making all this even more fascinating is Sony's unwitting role as a microcosm of sorts for Japan's economy. The company's hard times in recent years seemed to vindicate the views of those who long ago adopted an ``anywhere-but-Japan'' investment philosophy that even the great Sony was stumbling.

Like Japan in the 1990s, Sony has struggled with a transition from rapid expansion and ballooning profits to stable growth. The solution calls for a painful restructuring, and one can only hope that Sony has more success than the motherland. While many of Japan's companies have indeed strengthened their balance sheets, the government has done little to find new sources of growth.

Good News

The good news is Sony is trying to do just that. Sony and MGM together boast 8,000 film titles. An MGM agreement paves the way for a venture with Comcast Corp., the world's largest cable television operator, that lets viewers select and view movies from the two movie libraries via high-speed links. All this could be a blockbuster, of a flop.

It's the same big dreams, but Sony has been a lot more humble -- and perhaps more shareholder-friendly -- about how it goes about doing it. This could be an important moment in the history of corporate Japan, not to mention Sony.

Thanks to `Goldeneye` for the alert.

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