Naspers considers listing its pay-TV operations
● Naspers is considering a secondary listing abroad and will also look at separate listings for some companies within the group — including its South African and African pay-TV unit, CEO Bob van Dijk says.
The internet holding company is considering these and other “structural options” to rein in its considerable discount to the value of its holdings. The group trades at a discount to net asset value of about 40%, far higher than what many analysts deem a “fair” discount for a holding company, namely 20%.
Listing the pay-TV business, which trades under the MultiChoice brand, in South Africa was a possibility and could “help to unlock value and close the discount”, Van Dijk said. However, the process would not be easy if Naspers decided to go ahead with that option.
“It’s not straightforward. There are a number of considerations, for example, licence conditions and our Phuthuma Nathi [MultiChoice’s black empowerment vehicle] shareholders,” Van Dijk said.
“Whether it’s the right thing to consider a spin-out is really one of the options the board will consider. When decisions have been made, we will communicate them to the market as soon as possible.”
In December, Van Dijk told Business Times that Naspers was asking its traditional pay-TV business and print media operations “not to lose relevance to customers”, adding that all news and video entertainment would soon be consumed online.
“I do not think five years from now people will be picking up newspapers any more or watching linear TV,” he said.
MultiChoice remains highly cash-generative and has contributed meaningfully towards the development of Naspers’s newer internet businesses. But it faces new competition in the form of online streaming services such as Netflix. To counter the threat of new entrants it launched video-on-demand service Showmax in 2015 and has invested in local content.
For the time being, analysts say, MultiChoice’s SuperSport bouquet will keep subscriber numbers in the traditional pay-TV business healthy.
Naspers would also consider listing clas- sifieds businesses in the Netherlands, among a number of other options. Further, Van Dijk said the group was looking at numerous markets for a secondary Naspers listing, which could reduce the discount by introducing new investors to the group.
These markets included Hong Kong — where its crown jewel, Tencent, is listed — the Netherlands “and a few more”.
“Different markets have different pros and cons. We want a highly liquid market, we want index inclusion and we want a different class of investors that we don’t already have.
“Some of the jurisdictions tick the boxes more than others, and then you have things like additional governance, regulatory and administrative burdens, so we look at all relevant exchanges.”
Van Dijk said reducing the discount was not the primary aim of Naspers’s decision to sell HK$77-billion (about R115-billion) worth of Tencent stock, though redeploying that capital into its newer e-commerce businesses could supplement its efforts in that regard.
On Thursday last week, Naspers sold 190million Tencent shares to institutional investors, thereby reducing its stake in the Chinese technology giant from 33.2% to 31.2%.
With markets in turmoil on the basis of fears that a global trade war is imminent, and with Tencent having reported slightly weaker than expected fourth-quarter revenues, Naspers had to settle for selling its Tencent shares at an 8% discount.
Paul Theron, CEO at local money manager Vestact, said he suspected the share sale was an effort by Naspers “to signal to the market that the Tencent stake is ‘real money’, in order to close the ludicrous valuation gap that persists”.
Van Dijk, however, disputed this.
“The real objective of the placement was that we have a large number of opportunities in our core e-commerce segments that we want to pursue, and we wanted the financial flexibility to do that,” he said.
However, allocating more money to its e-commerce businesses would allow that segment to scale quicker and reach profitability sooner than might otherwise have been possible.
Naspers’s e-commerce segment includes investments in payments, food delivery and classifieds businesses, mostly in emerging markets.
“In the e-commerce segments, $10-billion [about R118-billion] means a lot and if these segments broke up further I think they would be easier for investors to recognise the value.
“When we continue to invest in stuff in ecommerce, as we have done, it will significantly increase the value of those businesses and therefore help to meaningfully reduce the discount,” Van Dijk said.
Van Dijk noted that while some investors had “very short horizons” and wanted quick fixes to the discount problem, “I’m paid to think three to five years ahead and the board is paid to think five to 10 years ahead”.
Some shareholders have called for a complete unbundling of Tencent, among other measures. “None of these things are silver bullets, so we want to really deliberate that the choice we make will help in the long term and is not just a little band-aid for a problem that certain people want to solve in a different way,” Van Dijk said.
Meanwhile, Theron said he was sceptical about whether Naspers’s commitment to not sell more Tencent shares for at least the next three years was the right move.
“In any event, Naspers is a strong buy at current levels. It is worth far more, probably something in the order of R5 000 a share,” he said.
Shares in Naspers have gone backwards in 2018, closing on Friday at R3 150.
We want a highly liquid market and a different class of investors we don’t have
Up until now, corporate raiders that have come sniffing around Naspers, and I’m sure there have been quite a few, have encountered something of a fortress. The board has ensured through its rather complex controlling structure that it is virtually impossible to make a play for Africa’s biggest media company without its buy-in. Through the shareholding structure, the Koos Bekker-led board have shares that have about 1 000 times the voting rights of normal shareholders. More than a decade ago, PSG’s Jannie Mouton made a play for some of these high-voting shares, but lost that battle, ensuring that the company’s future has, as always, been decided in its Cape Town headquarters.
With control sewn up, the board has gone about its business, not really fussed by concerns of the investment public, whose reservations could largely be ignored for the sake of “long-term” vision.
For a media company, a business about new ideas, there is merit in some level of management control, something that a Rupert Murdoch can attest to. And there can’t be too many unhappy shareholders. Naspers’s stock rose more than 2 000% over the past 20 years.
But it’s a ride that’s been largely, if not wholly, powered by a stupendously successful 2001 investment in Tencent that’s become larger in market cap than both Facebook and ExxonMobil.
The worth of the company’s more than 30% stake in the Chinese firm is in excess of the entirety of Naspers’s own market cap. It has been so for some time, as other investments haven’t measured up to the greatest success in venture capitalism. Were its control not tightly exercised, the board would long ago have been forced to unbundle its prized asset to the benefit of shareholders, even if, in the end, the business may have suffered.
For the past 17 years, though, Naspers has been in a position to ward off all suggestions of any such undertaking. Belligerent is perhaps the best way to describe Bekker’s response when quizzed about the future of the business, which now is basically Tencent.
For the most part, investors have believed that an unbundling would unlock value and allow shareholders the choice of either an exposure to
Naspers’s unappreciated businesses, or an investment in China’s largest social media firm. Unlike other corporations that are vulnerable to a powerful activist shareholder instigating a change in strategy from within, the media giant’s shareholding structure ensured immunity to such attacks.
However, there may just be a change in the way things are run at Naspers’s Cape Town offices, if one considers developments this week.
Investor concerns may just be much weightier in the media company’s boardroom with this week’s decision to sell some of its Tencent shareholding, an act that can only be read as an attempt to rein in its considerable discount to the value of its holdings. The firm trades at a discount to net asset value of about 40%, far higher than what many analysts deem a “fair” discount for a holding company, namely 20%. Perhaps the noise about executive remuneration last year by big institutions such as Allan Gray has alerted Naspers that sentiment can no longer be ignored. Or was it the cloud of “state capture” that surrounds its local operations?
Last year, Allan Gray went public with its intention to vote against the company’s remuneration policy, something it had done in the two previous years. More than 50% of its shareholders were unhappy that Naspers executives were being granted bonuses based on the performance of Tencent, something they had little to do with. The decision, now, to marginally reduce its stake will quieten some discontent around Naspers, for a while. But there’ll be more demands on the group to find a long-term solution to the Tencent question.
The listing of the group’s South African and African pay-TV operations may just be the long-term fix the market is looking for. If an internet business is the Naspers vision of its future, the business in its portfolio that doesn’t quite fit into that description is MultiChoice.
It would be a significant break with strategy, but the board seems to have reached the point where it can no longer ignore sentiment. Last year’s criticisms clearly stung.
There just may be a change in the way things are run at Naspers