Sony-Columbia Pictures: Lessons from a Cross Border Acquisition

<< Previous

"It is a Japanese failure of judgement and an American failure of management." ¹

- A Sony investor, commenting on the Sony-Columbia merger.

The Acquisition & Problems

On September 25, 1989, Japanese electronics major Sony² acquired the US-based Columbia Pictures Entertainment (Columbia), which also included TriStar Pictures, paying $4.8 billion ($3.2 bn in cash and assuming an additional debt of $1.6 bn) for it. Industry analysts felt that the acquisition cost of $27 per share paid by Sony was very high compared to Columbia's share price of $12 at the beginning of 1989. Moreover, Sony paid 22 times more than the company's annual cash flows at the time of acquisition.

Initially, Sony was interested in acquiring a controlling equity stake in Columbia. When the negotiations started, Sony felt that just acquiring a controlling stake would not serve the purpose. Norio Ohga (Ohga), the CEO of Sony at the time of acquisition, believed that Sony's core business - manufacturing video cassette recorders (VCRs) and camcorders had significant synergies with Columbia's movie business. With the acquisition of Columbia, Sony aimed at setting industry standards for the future generation of digital video technology. However, within the next few years, Sony's strategy of buying Columbia, which was renamed Sony Pictures Entertainment (SPE) in 1991, began to seem like a costly mistake. During the first five years of the acquisition, Sony faced many problems in its movie business.

Though SPE scored some hits such as "Sleepless in Seattle" (1993) and "In the Line of Fire" (1993), most of its big budget films such as "Last Action Hero" (1994) failed miserably at the box-office during that period. Apart from this, escalating costs and attrition at the top management levels added to the problems of Sony's movie business. As a result, in November 1994, Sony had to announce a $2.7 bn write-off of its investments in Columbia, in its quarterly financial report. It also showed an additional $510 million (mn) as operating loss (incurred from Columbia's operations during that quarter) in the financial report.

Sony-Columbia Pictures: Lessons from a Cross Border Acquisition - Next Page>>

---

Custom Search

---

Economics for Managers Textbook Textbooks Collection	Economics for Managers Workbook ICMR books Collection	Case Studies in Business Strategy Volume VI Case Study Volumes Collection

1] "So Many Dreams, So Many Losses," Rudolph, Barbara Allis, TIME, November 28, 1994.

2] Established in May 1946, Sony is a leading global manufacturer of audio, video, communications and IT products. The company invented the video recorder, walkman and mini-disc recorder.

3] Certain investors were angry at Sony's abrupt disclosure of huge losses and said that the company had misguided them by not disclosing the actual performance of the movie business. The financial results of the movie business were clubbed with the highly profitable music business under the heading 'Entertainment.'

4] As on April 22, 2004, 1 US $ = JP ¥ 109.266.