Naspers pressed to fix control issue

Investors worried about voting power of nonexecutive directors

● Naspers is in talks with one of the world’s leading index providers about an control structure that threatens Africa’s largest media company’s weighting in indices as MSCI seeks to punish shares which give some investors more voting rights than others.

Some global investors have voiced their discontent with the Cape Town-based group’s structure in recent years and called for an overhaul, worrying about how much influence some of its nonexecutive directors actually have over the company.

Naspers’s has a dual-class share structure whereby its unlisted A shares have more voting rights than its JSE-listed N shares. The fact that its chairman, Koos Bekker, is a former CEO is also frequently cited by shareholders as a corporate-governance concern.

MSCI, which measures equity markets in emerging markets such as South Africa and Brazil, is now considering reducing the weighting of companies like Naspers, which have “unequal voting shares” in its indices.

Naspers is a major constituent in indices such as the MSCI Emerging Markets Index, which tracks the performance of large companies in developing markets.

Naspers’s control structure entities, Naspers Beleggings and Keeromstraat 30 Beleggings, own most of Naspers’s A shares, which in turn account for just more than two-thirds of the company’s voting rights.

If MSCI goes ahead with the proposal, analysts say it could dent Naspers’s share price and compound its problem of trading at a hefty discount to its investment in Chinese internet company Tencent.

“It would be upsetting and it could potentially result in some downward pressure from index-tracking funds, who would be obliged to sell down to remain in line [with MSCI indices],” said Paul Theron, CEO of local money manager Vestact.

Over the past decade Naspers, which owns MultiChoice and Media24, has seen its shares jump almost 2 000%, valuing the firm at over R1.4-trillion and making it South Africa’s most valuable company.

As a long-term investor, Vestact would probably not consider selling its Naspers shares, though the move by MSCI could raise pressure on Naspers’s management to do away with the group’s control structure.

Naspers chief financial officer Basil Sgourdos told Business Times on Friday that MSCI had asked the company several questions as part of its proposal.

Naspers believes the move would not be in the best interests of shareholders.

“At the end of the day, some of the best performing companies in the world today have these structures in place, so if you go and encourage funds to reduce exposure to those companies, the absolute returns those funds can give their shareholders are likely to go down,” Sgourdos said.

“So I think this requires a lot of thought. We’ve put in submissions to MSCI and we’ve explained very carefully what it will do.”

Further, if the proposal was implemented in its current form, MSCI would allow a phasing-in period of at least three years, according to Sgourdos.

Naspers CEO Bob van Dijk said investors knew about a company’s control structure before investing in it.

“It’s very clear when investors go into these companies that these structures exist. It’s not as though we’re moving the goalposts after people have made their choices.”

In the technology sector such control structures are relatively common and used to shield companies from hostile takeovers. Naspers’s control structure blocked a hostile takeover attempt by PSG in 2005.

At least one big investor thinks MSCI’s proposal is a bad idea. Reuters reported in early June that Norway’s $1-trillion (R13.4trillion) sovereign wealth fund had voiced opposition to the proposal, which would also affect companies such as Facebook. The fund said the proposal could distort markets by removing about 4% of the market capitalisation of the current MSCI World Index.

Theron, meanwhile, said the MSCI proposal “points towards greater pressure on Naspers with regard to its voting structure arrangements, and then also just broadly regarding the discount. Just as much as nature abhors a vacuum, capitalism abhors a value discount.”

Naspers’s share price closed 3.1% higher at R3 307.43 on Friday after the company said revenues in the year to end-March increased by 38% to $20-billion. Core headline earnings grew 72% to $2.5-billion.

Even though Naspers generates 84% of its revenues outside South Africa, from 80% a year before, it is one of the 10 largest taxpayers in the country. It contributed about R10.3-billion to the SA Revenue Service in its financial year.

“Classifieds, B2C [business-to-consumer], payments and food delivery contributed meaningfully to an acceleration in ecommerce revenue growth by 25%,” Sgourdos said. “Increased scale trimmed the ecommerce segment’s trading losses by 8% to $673-million and resulted in a considerable improvement in trading margins.”

It’s very clear that these structures exist. It’s not as though we’re moving the goalposts

Bob van Dijk

Naspers CEO