Share swap best, says Naspers
• CEO Van Dijk aims to narrow group’s valuation gap
Naspers is taking another stab at the long-standing gap between its market value and the sum of its parts, unveiling a share swap deal that will cut its size on the local stock exchange and boost the free float of its global internet arm. The deal will see Naspers’s global internet division, Prosus, issue new shares in exchange for a stake of about 45% in the parent.
Naspers is taking another stab at the long-standing gap between its market value and the sum of its parts, unveiling a share swap deal that will cut its size on the local stock exchange and boost the free float of its global internet arm.
The deal, which will see Naspers’s global internet division Prosus issue new shares in exchange for a stake of about 45% in the parent, is the latest in a string of attempts by CEO Bob van Dijk to narrow the multibillion-rand valuation shortfall.
Van Dijk, who has been preoccupied with what he previously called the “problem of prosperity” since taking the helm in 2015, hopes the latest effort will cut Naspers’s outsized weighting on the JSE, where it accounts for more than a fifth on the benchmark Swix index, and it makes fund managers forced sellers to limit their exposure to a single company.
The proposed share swap, which is voluntary, is expected to reduce the weighting to about 14% and make Prosus the biggest shareholder in the parent.
“This is in the best interests of Naspers shareholders. The people that don’t see it that way might be a small minority, and that’s OK,” said Van Dijk.
Apart from cutting Naspers’s weighting on the JSE, the deal is expected to boost the number of freely traded shares in Prosus, which is listed in Amsterdam with more than 70% of its stock in the hands of its parent, to more than $100bn.
Founded more than a century ago as newspaper publisher, Naspers has reinvented itself into a R1.4-trillion company with private-equity style investments in e-commerce companies.
But its market value is dwarfed by its 73% stake in Prosus, a R2.4-trillion European internet juggernaut that is grappling with a valuation gap of its own as its 29% stake in Tencent — worth almost R3-trillion — eclipses its market capitalisation even though the company has other assets in its portfolio, such as German food delivery group Delivery Hero and online education platform Udemy.
By having more Prosus shares available for trading, the group hopes to increase interest in the stock from international investors and drive up the share price.
“We’re doing a transaction where we increase the free float of Prosus substantially, which actually makes it more attractive, better indexed, an absolutely top company and also at an exchange that can handle it,” said Van Dijk. “This is a natural extension of what we’ve been doing.”
Listing Prosus in Amsterdam in 2019 was one of the biggest steps by Van Dijk to narrow the valuation discount, hoping that handing a sizeable consumer technology company to European funds starved of it would boost the company’s share price.
Despite early success in bringing the valuation shortfall to acceptable industry levels, the spin-off has not delivered the desired results. The gap has been widening as investors piled into Tencent, pushing its share price nearly 37% higher over the past year and outpacing Prosus and Naspers, which lost 3% and 11%, respectively in the same 12month period.
At close of trade, Naspers’s share price was 1.6% lower but Prosus had added 2.7%, outpacing the 0.34% gain on the JSE top 40 index as investors welcomed the news.
“This will help to narrow, but not eliminate, the discount. That will require additional steps,” said Peter Takaendesa, head of equities at Mergence Investment Managers. “They need to get to a point where Prosus and Naspers are growing faster than Tencent, which still has better returns.”