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November 28, 2003
Tokyo, Japan - At the Board of Directors' Meeting held today, Sony Corporation ("Sony") decided to make Sony Computer Entertainment Inc. ("SCE") a wholly-owned subsidiary through a stock for stock exchange on April 1, 2004. This stock for stock exchange will be implemented under Article 358 of the Commercial Code and does not require the approval of Sony's General Meeting of Shareholders.
Sony's Corporate Strategy Meeting held on October 28, 2003 included measures to promote growth through the convergence of group resources and technology. By making SCE a wholly-owned subsidiary, Sony aims to accelerate this growth strategy by creating new markets through the convergence of electronics and game technology and by strengthening Sony's semiconductor development.
Sony retained Morgan Stanley Japan Limited ("Morgan Stanley") and SCE retained Merrill Lynch Japan Securities Co., Ltd. ("Merrill Lynch"), respectively, for advice on the analysis of the stock for stock exchange ratio and other relevant matters. Based on such advice and other considerations, Sony and SCE negotiated and came to an agreement on the stock for stock exchange ratio as follows.
The stock for stock exchange ratio shown below may be changed through discussions between Sony and SCE, if there are any material changes in any of the various conditions based on which the ratio has been determined.
| Sony | SCE | |
| Stock for stock exchange ratio | 1 | 10,000 |
(Each share of SCE common stock shall be exchanged for 10,000 shares of the common stock of Sony)
(Notes) 1. Sony has received an opinion letter from Morgan Stanley that states that the aforementioned Exchange Ratio is fair to Sony from a financial point of view based on and subject to certain assumptions and conditions. A copy of the opinion letter will be attached to the Statement of the Reasons for Setting the Ratio for Exchange of Shares to be furnished at the head office of Sony pursuant to Clauses 1 and 9 of Article 358 of the Commercial Code. The assumptions and conditions made or used by Morgan Stanley in the preparation of the opinion are set forth in such opinion letter. In the preparation of its opinion, Morgan Stanley has performed a DCF (Discounted Cash Flow) analysis, a comparable companies analysis and other analyses it deemed appropriate to estimate the equity values of Sony and SCE on a consolidated basis, estimated the incremental value of synergies expected as the result of the transaction, and analyzed the trading performance of Sony's common stock. Morgan Stanley holds the view that focusing exclusively on any particular valuation method or giving specific weights to different methods to make a mechanical calculation is inappropriate and, accordingly, considered all of its analyses as a whole in arriving its opinion.
2. Merrill Lynch has performed the exchange ratio analysis for this transaction based on the estimated equity values of SCE and Sony on a consolidated basis through the following valuation methodologies: DCF analysis incorporating value to be created in the converging business domain of SCE and Sony, which is realized in Sony through the contribution of SCE; publicly traded comparable companies analysis; acquisition comparables analysis; and backward- and forward-looking contribution analysis.
3. Number of shares to be provided in the stock for stock exchange:
1,000,000 shares of common stock of Sony will be provided.
No new shares will be issued.
| (1) Trade name | Sony Corporation | Sony Computer Entertainment Inc. |
| (2) Field of business | Manufacture and sale of electronic and electrical machines and equipment |
Develop, manufacture and sell electronic equipment using computer systems for entertainment and education and their peripheral devices and parts |
| (3) Date of incorporation | May 7, 1946 | November 16, 1993 |
| (4) Location of head office | 7-35, Kitashinagawa 6-chome, Shinagawa-ku, Tokyo |
6-21, Minamiaoyama 2-chome, Minato-ku, Tokyo |
| (5) Representative | Nobuyuki Idei, Representative Corporate Executive Officer |
Ken Kutaragi, Representative Director |
| (6) Share capital | ¥480,261 million | ¥1,933 million |
| (7) Total number of shares issued and outstanding | 929,488,030 shares | 38,500 shares |
| (8) Shareholders' equity | ¥1,849,256 million | ¥156,413 million |
| (9) Total assets | ¥3,663,008 million | ¥495,609 million |
| (10) Date of settlement | March 31 | March 31 |
| (11) Number of employees | 17,730 | 2,000 |
| (12) Major customers | Affiliated manufacturing and sales companies inside and outside Japan |
Affiliated manufacturing and sales companies inside and outside Japan |
| (13) Major shareholders and voting rights ratios | rights ratios 1 Moxley & Co. 12.8% 2 Japan Trustee Services Bank,Ltd. (Trust Account) 5.0% 3 The Chase Manhattan Bank, N. A. London 3.4% 4 The Master Trust Bank of Japan, Ltd. (Trust Account) 2.9% 5 Sumitomo Mitsui Banking Corporation 1.3% |
1 Sony Corporation 99.74% 2 Ken Kutaragi 0.26% |
| (14) Main banks | Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd. and others |
Sumitomo Mitsui Banking Corporation and others |
(15) Business results for the three most recent years (unit: millions of yen)
| Sony | SCE | |||||
| Fiscal year ended on | 2001/3/31 | 2002/3/31 | 2003/3/31 | 2001/3/31 | 2002/3/31 | 2003/3/31 |
| Net sales | 3,007,584 | 2,644,195 | 2,526,264 | 625,880 | 788,207 | 735,701 |
| Operating income (loss) | 50,458 | (52,994) | (136,644) | 9,259 | 47,337 | 41,683 |
| Ordinary income (loss) |
81,502 | (6,122) | (29,525) | 4,643 | 46,781 | 43,012 |
| Net income (loss) | 45,002 | 29,635 | (4,868) | 3,339 | 28,686 | 24,215 |
| Net income (loss) per share (yen) | 49.18 | 32.22 | (5.46) | 86,736 | 745,100 | 622,391 |
| Dividends per share (yen) | 25 | 25 | 25 | 0 | 343,000 | 0 |
| Shareholders' equity per share (yen) | 2,021.33 | 2,024.10 | 1,968.62 | 2,792,768 | 3,705,947 | 3,798,807 |
