“The board remains committed, and management is incentivised, to continue to take action to address the discount” to net asset value (NAV) of Naspers and Prosus shares, Prosus said in a statement on 10 June.
Naspers has traded at large discounts to NAV on the Johannesburg Stock Exchange (JSE) for years, leaving the jewel in the crown – its stake in Chinese tech giant Tencent, as well as its other investments – undervalued. Naspers-controlled Prosus argues that its Amsterdam listing has helped reduce Naspers’s size on the JSE and resulted in net foreign direct investment into the conglomerate.
- The share-swap transaction will increase the Amsterdam free float and “relieve pressure resulting from the too-large size of Naspers” on the JSE, which “has inhibited Naspers’s market valuation,” Prosus said.
- The share-swap proposal is being put to Prosus shareholders at an extraordinary general meeting on 9 July.
The concerns raised by shareholders are “not really addressed and issues brushed off” in the statement, says Rajay Ambekar, CEO of Naspers shareholder Excelsia Capital and signatory to the letter to the non-executive boards of Naspers and Prosus reported by The Africa Report on 10 June.
Albert Saporta, director of Alternative Investment Management & Research (AIM&R) in Geneva, explains further in an open letter to Naspers and Prosus CEO Bob Van Dijk dated 11 June, which was sent to The Africa Report:
- “Prosus’s reply in its 10 June website update is wholly inadequate,” he says.
- “A cross-shareholding structure in an already pyramidal structure is the worst, least efficient type of corporate structure one can think of.”
- In Europe and Asia, such a structure “was often the route chosen by family holding companies wanting to exert maximum control on assets with minimum capital. Be assured you have not invented anything original with this structure. It is one of the past, and thankfully most have been restructured and have disappeared.”
Saporta argues that management incentives at Naspers and Prosus need to be overhauled.
- “Naspers’s stock price is highly dependent on Tencent’s stock price. Yet, you have no influence whatsoever on Tencent’s share price. It is therefore illogical that management’s compensation be based on something it has no control on.”
- Management compensation, Saporta argues, should be based on reductions in the discounts to NAV at which Naspers and Prosus trade.
- Since the Prosus IPO, the stock has underperformed Tencent by 29%, Saporta says. Naspers meanwhile “suffers from the creation of this useless pyramidal structure which has overlaid a discount on top of a discount . . . Prosus/Naspers have been a value destruction machine on a grand scale.”
A united front?
Rather than a holding company for assorted investments, Prosus should become a straightforward Tencent tracker, according to Saporta. Such trackers, he says, trade between fair value and 15-20% discounts to NAV.
- Prosus, he argues, should then take the path previously followed by Yahoo with its Alibaba stake and unwind the structure.
- Stakes held by Prosus in other companies such as Mail.ru, Delivery Hero and Trip.com should be spun off into a separate investment vehicle, he adds.
Saporta has been a fierce critic of Naspers management since 2017. His firm does not hold stock in either Naspers or Prosus, but offers advisory services to shareholders.
There is, as yet, no sign that investors are united behind his proposals.
- If yesterday’s response is the final word from Naspers, then each of the 35 fund managers “will have to consider their next steps individually,” says Ambekar of Excelsia Capital.
- Shareholder criticism contains valid points, however, the group “should be proposing an alternative” says Sumeet Singh, the head of research at Aequitas Research in Singapore who publishes on Smart Karma.
- If shareholders collectively “have no idea what would be better, it doesn’t sound very constructive,” he says.
If they don’t hang together, shareholders of Naspers and Prosus risk being left to hang separately.
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