Fork in road for Naspers shareholders
September 13 is the deadline for a decision
For many years shareholders have been pushing Naspers’ management to do something to narrow the discount that Naspers trades at, relative to its net asset value. That time has finally arrived.
Liam Graham, a director of East London-based NVest Securities, cautions Naspers shareholders, who may have not fully grasped the importance of Naspers’ proposed listing in Europe, to either carefully analyse the two options offered to them, or talk to an expert.
Delaying a decision, with the clock ticking, may, he said, cost them.
Graham said: “Naspers currently trades at a massive 28% discount to just one of its largest holdings, the Chinese giant Tencent. Tencent’s impact alone amounts to a massive R1200 a share.
“This value ignores the value inherent in Naspers’ other listed and unlisted technology and e-commerce businesses.”
In 2001 Naspers paid $32m for a 46.5% stake in Tencent, which had formed three years earlier to offer an instant messaging service.
“A secondary consideration for shareholders’ desires to see a narrowing of the share price compared to Naspers’ real value, is to reduce the single stock concentration risk that has plagued Naspers’ shares, given its 20%-plus weighting in many of the main local indices.”
He said to address this valuation discount, Naspers had taken the decision to spin off their international businesses and list them in a new holding company on the Amsterdam stock exchange (Euronext), with a secondary listing on the JSE. “As it stands, Naspers will retain a 75% stake in the new entity and its current shareholders will be given the remaining 25%.
“The new holding company will be known as Prosus.
“Once listed, Prosus will be a leading global consumer internet group, with more than 1.5bn customers across 91 markets. It will have a market capitalisation of approximately $100bn,” Graham added.
“It is a remarkable achievement for a 100-year-old company that once relied on print – magazines and newspapers.”
“NVest Securities believes that from an investment perspective, owning Prosus offers the best return.
“First, the majority of the ‘sum of the parts’ discount lies within the international businesses, and thus getting direct exposure to these assets is the best way to realise any revaluations. Secondly, offshore investors are far more comfortable and experienced at valuing new technology business that are going through investment phases and are loss-making.
“Thirdly, Prosus is likely to be added to various global indices, which means there will be natural buyers as Exchange Traded Funds and index trackers are forced to add Prosus to their portfolios.
“While Naspers will retain a 75% holding in Prosus, and is arguably also placed to benefit from the revaluation of the underlying assets within Prosus, it is less certain whether the market will continue to apply the holding company discount that Naspers is trying to eradicate with this transaction.”
Graham said current Naspers shareholders have two options to consider with regard to the practicalities of the spin-off, and each has different tax implications.
With the first option, Naspers shareholders receive one Prosus share for every Naspers share they own. The transaction will generate capital gains tax.
The share price should range between R900 and R1,200. Naspers shareholders will continue to hold their original Naspers shares plus they will have Prosus shares.
With the second option, Naspers shareholders can choose to receive 0.36986 additional Naspers shares for each existing Naspers share they own.
He said this transaction did not trigger CGT immediately, but this will become effective when the shares are sold.
“As can be seen from the two options shareholders can’t simply sit on their hands and wait for a default action, which will kick in after September 13, the deadline to make their elections.
“If investors have any uncertainty about what they should be doing to maximise their own specific best course from what is an exciting development, I suggest that they consult their brokers.”
NVest Securities is a member of the NVest Financial Holdings group of companies.
Prosus will be a leading global internet group