Sony, which is setting the price range on the stock tomorrow, hopes to sell 12 billion yen (US$100 million) of new shares that track the performance of Sony Communications Network Corp, a unit that offers Internet services under the So-net brand. The shares, which offer no ownership of SCN, will represent 0.3 percent of parent Sony.
Tracking stocks, which have been sold outside Japan, have proven popular with companies because they allow them to raise more funds by highlighting high-growth parts of their businesses. While investors are given access to potentially high returns, there are risks too.
"I am not sure if it is worth buying the stock," said Norio Suzuki, senior fund manager at Axa Investment Managers Tokyo Ltd. "The stock won't give us voting rights in the company. It is the same as buying the Sony stock."
Sony is the first Japanese company to sell tracking stocks, following US companies such as AT&T Corp, Sprint Corp and last year Alcatel SA, which was the first European company to try the concept.
Some tracking stocks have rewarded investors well.
AT&T Corp's Liberty Media Group's tracking stock has outperformed its parent by more than 650 percent since July 1995, while the margin for Sprint Corp's PCS Group was 261 percent.
While AT&T Wireless, another AT&T tracking unit, has fallen 37 percent since its launch in April last year this is against a 51 percent fall in the parent stock.
Higher performance is not always the case, however. Because their assets are not separated from those of their parents, tracking stocks are seen by some investors as the poor cousin's of true spinoffs.
"It's great for the company issuing these things but they don't really give out much," said Joe Cornell, president of Spin-Off Advisors, an independent US research company that specialises in valuing tracking stocks.
"The big rub is there's no takeover premium whatsoever and there's a huge conflict of interest. You don't have a second board, so who's going to win out--the parent or the tracker?"
Those concerns have meant the performance of tracking stocks can fail to match their promise, Cornell said.
Alcatel Optronics, the tracking share of Alcatel SA, was sold for 85 euros on October 20 last year. The shares hit a high of 84.9 euros on October 24 and have been falling since then, underperforming the parent group by 12 percent.
Sony's tracking stock sale is seen as a litmus test for companies planning similar sales, fund managers said.
Sony said it will use the money raised to expand its Internet business, which it sees as crucial to the company's strategy. SCN will be used to link the company's hardware, such as its Vaio and Clie computers. So-net may also acquire overseas companies.
"Growth in So-net means growth in Sony," Sony chief pperating officer Kunitake Ando told investors at a roadshow meeting last week.
That hazy line between the two companies is a potential cause for concern.
"`I don't know if buying So-net shares means investing in that unit or Sony," said Yasuhiro Shinbayashi, chief fund manager at Japanese equity department at UFJ Asset Management Co. "If I buy So-net, does it mean I want to sell my Sony shares?"
Uncertain outlook
Some fund managers are also concerned about the outlook for the Internet unit, which made a loss in the year ended March of 499 million yen on sales of 35 billion yen.
"I am skeptical about the future of So-net," said Hideaki Kurimoto, a fund manager at Meiji Dresdner Asset Management Co. "Even if revenue from subscribers rises, they will need to spend a lot more for network investments. I wonder if it will make any profits."
SCN's So-net is Japan's sixth largest Internet service provider after Fujitsu Ltd's @nifty, NEC Corp.s Biglobe, NTT Communication Corp's OCN, KDDI Corp's Dion and Japan Telecom Co's ODN.
Three years after the sale, Sony has the option to convert the tracking shares into Sony stocks, or cancel the shares.
"So-net shareholders have no control over So-net," said Mitsuru Yoshikawa, the general manager at the legal and tax department of Daiwa Institute of Research Ltd. "It's up to investors to decide whether they like that or they value a company's independence."
Play video
There are currently no comments for this post.