Naspers still in the driving seat
Naspers CEO Bob van Dijk, addressing investors and reporters last week in a conference call, touted the latest in a string of attempts he says can alleviate his longstanding corporate headache: a hefty valuation gap to the company’s component parts.
Van Dijk inherited an emerging-market internet powerhouse in 2014 thanks to its one-third stake in Tencent, whose ascent has made chair Koos Bekker’s $32m (about R450m in today’s money) bet on the then little-known Chinese upstart in 2001 one of the most successful punts in corporate history.
But the “problem of prosperity”, as the Dutchman puts it, started to emerge as the stake began to eclipse Naspers’s own market capitalisation, prompting shareholders to press Van Dijk to do something.
What followed was a string of corporate actions including spinning off MultiChoice and showering investors with R82bn in cash. Perhaps the biggest step Van Dijk took was the Amsterdam listing of Prosus, hoping to give European investors starved of a sizeable internet company an outlet to park their money.
However, it soon became clear that the listing of Prosus, which houses Naspers’s $200bn stake in Tencent, simply relocated the discount to Europe and created a new one in SA as Naspers is worth less than its 73% holding in Prosus.
Hence, Van Dijk came up with a convoluted deal under which Prosus offered to buy up to 45.4% in Naspers in exchange for its own shares, to achieve two things central to the two discounts.
First, it should shrink Naspers’s weighting on the JSE, where it accounts for more than a fifth of the bourse and makes fund managers forced sellers lest they become too exposed to a single company. The deal should immediately cut Naspers’s dominance to 14%.
Second, Naspers’s stake in Prosus will be reduced to about 40% — more than doubling the Prosus free float to almost 60% from 26.8% in Euronext. As we have written before, as long as Prosus remains hooked on the money-spinning Tencent, one of the clearest paths to reducing the discount is for Naspers to loosen its tight grip on Prosus.
One could say the deal achieves this as Naspers’s holding in Prosus will shrink to about 40%, making more shares available to trade freely. But consider the fact that Naspers, now a parentturned subsidiary, is very much in control of Prosus because the deal comes with the issue of a new class of unlisted shares to Naspers.
That control structure makes Prosus immune to outside influence on strategy, bonuses and other governance issues, putting off a universe of active investors who want to have a say on its behaviour.
Alongside unlisted A-class shares, which carry 1,000 times more votes than ordinary shares and which kick in as soon as its Prosus stake falls to 50%, and additional B-shares that have the same voting rights as ordinary shares but negligible economic rights, Naspers retains its more than 70% stake in Prosus.
That is enough to ensure there is no change in control of Prosus that would trigger an estimated R700bn tax bill from the SA Revenue Service on Naspers’s more than $200bn capital gain on its stake in Tencent, which is now housed overseas.
For the SA authorities, who have given the deal the thumbs up without slapping Naspers with a hefty tax bill, they may have missed an opportunity to present a moral argument for Naspers to pay up. For Naspers’s shareholders, it is hard to imagine a scenario in which they would pass up an opportunity to switch from the volatile rand into a euro-denominated Prosus.
For Van Dijk, increasing Prosus’s free float should attract more investors to boost the company share price, and in the process cut Naspers’s weighting on the JSE.
Time will tell if he has hit two birds with one stone while dodging a hefty tax bill.
THAT CONTROL STRUCTURE MAKES PROSUS IMMUNE TO OUTSIDE INFLUENCE