Naspers pressed to fix con­trol is­sue

In­vestors wor­ried about vot­ing power of nonex­ec­u­tive di­rec­tors

Sunday Times - - Business Times - By NICK HED­LEY hed­[email protected]

● 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

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