Naspers: should investors worry?

MINORITY SHAREHOLDER SAY QUESTIONED There may be positives, negatives.

Should investors more concerned about who controls Naspers? The essential question is whether shareholders are able to exercise meaningful oversight over the company. Caxton believes the majority of voting rights rest with entities closely aligned to the company and its chairperson Koos Bekker.

If this is the case, where does that leave other investors?

“In principle, the public listing of a company’s ordinary shares provides an opportunity for any shareholder who is willing to pay the asking price, to gain a proportionate level of voting rights,” notes Charl Kocks of Ratings Afrika. “If the company is not performing as well as shareholders believe be it should be, then a takeover by a party that can improve performance, should be possible. This is one way management is held to account; if it does not deliver the goods, it could be replaced by other directors.” However, considering the way Naspers is structured, this might not be possible. Caxton argues there’s a controlling block of voting shares that effectively dominates and leaves minority shareholders without a meaningful say.

“This is one reason why the modern view on the listing of non-voting (or low-voting) shares is critical, and why control blocks are the subject of criticism,” says Kocks. “At least when they are apparent, any new shareholder will take them into account before investing; but if they are hidden, they may cause nasty surprises at voting time. As a further concern, hidden control blocks raise uncomfortable questions in respect of the reasons for their secrecy.”

Brad Preston, Mergence CIO for listed investments, agrees the control structures are unclear, but points out there may be both negatives and positives for shareholders.

“Practically, management and the chairperson have control of the company. Even if we accept the argument that the A shares don’t have a majority of voting rights, it would be very difficult to see control taken by a hostile party. PSG’s failed attempt to do this in 2006 is a case in point.”

Where more questions arise is whether minority shareholders can have any influence over strategy. Naspers continues to invest in operations outside of Tencent that are not yet generating meaningful returns, and has shown little interest in unbundling any of its assets that some investors believe would unlock value.

“On the one hand, there is an argument that Naspers would never be able to go through the long-dated investment cycle required to build their classifieds business if they were at the mercy of short term-focused stock market investors, and so the control structure is positive for the company in the long term,” Preston notes. “On the other hand, shareholders have no real way to rein in management if they disagree with their strategy.”

Worry over ‘controlling block of voting shares’