Naspers move will bring billions back
Prosus and Naspers have announced a $5bn (R81bn) share buyback, which is the JSE’s largest ever — and will see the group bring back to SA a chunk of the cash it has earned from its successful international foray of the past three decades.
The group, which is trading at a 50% discount to its underlying net asset value and has $10bn of gross cash on its balance sheet, made it clear on Friday it believes a buyback is a sensible way to put its cash to use, giving its shareholders a greater stake in its existing internet assets at a time when the Covid crisis has driven up valuations of potential new acquisition targets.
In the largest piece of the transaction, Amsterdam-listed Prosus will buy $3.6bn of Naspers shares on the JSE, which will result in a substantial foreign inflow to SA.
Prosus was hived off from Naspers in September last year to house the group’s international assets, including its hugely valuable 31% stake in Chinese consumer internet group Tencent, which is worth more than the group as a whole.
Prosus will buy the remaining $1.4bn on the open market directly from its own shareholders. Prosus shareholders are mainly European investors, whereas about 40% of Naspers shareholders are South Africans. Naspers holds 72.5% of Prosus.
Said Prosus and Naspers CEO Bob van Dijk: “Utilising cash to own more of our current portfolio through a purchase of our own shares — when the discount to NAV is sizeable — is a sensible use of capital.”
The group will embark on the buyback after it reports interim financial results on November 23, buying shares over time in a way that won’t disrupt pricing.
Prosus, which is Europe’s largest consumer internet group and one of the world’s largest technology investors, has long sought to expand its portfolio of businesses in its core areas of online classifieds, food delivery and payments, and fintech.
But two attempts to make big acquisitions before the Covid crisis ran aground, with the group balking at the price for UK-based food delivery business Just Eats and walking away from eBay Classifieds because the vendors wanted a merger, not a sale.
And though it continues to look at acquisition opportunities, the Covid crisis has seen valuations for consumer internet businesses go sky-high across the world.
It has also seen the Prosus and Naspers shares outperforming their respective markets by a wide margin, further widening the discount at which the shares trade.
Last year’s complex Prosus unbundling and listing was meant to address the discount, which is a result in part of the very high weighting the Naspers share has in the JSE index. This forces many institutional investors to sell down their holdings when the share price rises because they get overexposed.
But this year’s outperformance again widened the discount, taking it back to levels seen before the Prosus transactions. The Naspers share now makes up about 26% of the JSE.
The group has repeatedly said it will look at all options to narrow the discount but has declined to commit to a timeline. Van Dijk said at the time of the group’s results in September: “We are victims of the growth in the share price but we firmly agree the discount is an issue we need to resolve and we are focused on doing that.”
Analysts do not expect it to sell down any of its Tencent stake. They have speculated it could look at other structural options such as a sell-down by Naspers of its Prosus stake, if the SA authorities would allow this.
Utilising cash to own more of our current portfolio … is a sensible use of capital Naspers CEO Bob van Dijk