Market shows the love as Naspers announces end of convoluted relationship with Prosus

27 Jun 2023

The move to end the convoluted cross-holding arrangement will ultimately see a simplified group structure. With that news, both Naspers and Prosus ended the day on an up, gaining in value by 8.5% and 5.7% respectively.

Naspers and its Amsterdam-based investment arm, Prosus, will embark on a “conscious uncoupling”, as it were, after announcing they would unwind their convoluted relationship with each other, which has undermined shareholder value.

Introduced barely two years ago, the cross-holding was designed in such a way that Prosus owned nearly half of its South African parent (49.5%), while the latter owned 61% of Prosus. Now, the South African Reserve Bank has approved a transaction that will allow Naspers to buy back more of its shares and work to undo the cross-holding, the companies announced on Tuesday. The move will ensure that Naspers ownership of shares in Prosus aligns with its current economic interest of 43%, while the remaining 57% ownership in Prosus will continue with the Prosus free float, whose ownership also aligns with its existing economic interest.

Naspers will retain a 72% voting interest in Prosus and Prosus will remain a subsidiary of Naspers.

Effectively, this means that Naspers will dilute its holding in Prosus from 61% to 43%, and Prosus will ultimately be diluted out of Naspers.

A Prosus spokesperson explained: “The benefits are twofold: One, it allows us to continue with our open-ended buyback, which … has delivered a huge amount of value, decreased the discount by 17% and created almost $30-billion of value for shareholders in the increase in share price. And it’s created a huge amount of value. We want to continue that transaction.”

It was news that the market seemed to have been waiting for, as the Naspers share price surged by 10.32% during the day while Prosus was up by 9.1%. However, afternoon trade was slightly muted, with Naspers closing 8.56% up and Prosus about 5.69% up.

During an annual results call today, Prosus CEO Bob van Dijk said the cross-holding was necessary at the time to resolve a clearly unsustainable situation in which Naspers dominated the JSE by making up a quarter of the bourse, but the cross-holding was widely seen as negative by shareholders.

‘Excellent solution’

The group therefore deemed the disengagement as, “an excellent solution, with minimal costs and will ensure the continuation of the open-ended share repurchase programme, which is delivering significant value to our shareholders”.

The annual profit of global internet and media company Naspers almost halved because of lower contributions from Chinese internet giant Tencent, which was hit by Covid-19 lockdowns in China and geopolitical and macroeconomic uncertainty.

Naspers’ profit fell 46.3% to $9.96-billion, while core headline earnings, a measure of after-tax operating performance, were down almost a half (48.2%), to $1.1-billion. Group trading profit declined by 32% to $3.3bn, reflecting Tencent’s lower contribution, owing to the Covid-19 lockdowns and new regulations in China, and an increase in the group’s share of losses from e-commerce associates.

Naspers owns Media24 and Takealot, as well as associated businesses Mr D Food, Superbalist, Autotrader, Property24 and PayU. It was also an early investor in Tencent, whose market capitalisation skyrocketed to nearly $1-trillion in early 2021. Bloomberg reported that it was this 29% stake that pushed Naspers’ weighting on the JSE to 23%, which caused problems for local fund managers who faced caps on trading it. It has since reduced its stake in Tencent to 26%.

Van Dijk said their open-ended share buyback was doing “exactly what it is supposed to do – growing NAV (net asset value) per share while increasing our per share exposure to Tencent. It has delivered a 5% increase in NAV per share from launch up until 31 March 2023, unlocking $29-billion in shareholder value. We expect the repurchase programme to continue unchanged in the current financial year”.

Group CFO Basil Sgourdos said that both Naspers and Prosus would issue capital in their own stock to existing free-float shareholders. “The Naspers and Prosus entities won’t participate in each other’s issuance. In the final step, Prosus will sell its very small residual holding in Naspers, unwinding the cross holding.”

The proposed transaction is expected to be implemented in Q3 this year. DM

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‘Excellent solution’