Operation Value Unlock continues for SA’s biggest stock – why it’s a “no brainer” to swap your Naspers shares for Prosus

It’s been a year and a half since Naspers, the JSE’s dominant listing, re-engineered the business by floating its new European subsidiary Prosus on the Amsterdam Stock Exchange. According to CEO Bob van Dijk, the decision immediately unlocked $16bn in value for Naspers shareholders. Today the group announced another step in Project Value Unlock. Naspers shareholders are being offered to convert the Naspers shares they own into Prosus stock. Naspers shareholders are entitled to tender all of their stock for the swap, but because Prosus wants to keep its Naspers stake below 50% for now, its guarantee is to allow a minimum of 45.4% of each shareholder’s holding to be converted. As a result of the deal, Naspers’s shareholding in the Dutch internet company will fall from 73% to 57%. This will double the free-float of Prosus shares, elevating the stock into the top 20 of the main Eurostoxx Index and thus making it a must-buy for many index trackers. The opposite occurs with Naspers whose share of the main JSE Index falls from 23% to 14%. The major issue for Prosus/Naspers is the huge discount at which the stock trades relative to the market value of their major asset, 31% ownership of Hong Kong-based internet giant Tencent. Because it is listed in Europe, Prosus trades at a smaller discount to the value of this Tencent stake than does SA-listed Naspers. That gap is widening. For instance, in the past year Prosus shares rose 50% while Naspers gained 30%. Naspers individual shareholders opting to swap will be liable for capital gains tax. For those who have owned the shares for a long time, that will cost the equivalent of a fifth of the value of what they are swapping. There is no such tax applicable for savings institutions like mutual funds. – Alec Hogg

Bob van Djik on the Naspers/Prosus deal:

Under the deal, Prosus would acquire 45.4% of the issued Naspers N shares, and that would take its total interest in Naspers to 49.5%. What it does is significantly increase the free flow of Prosus. That will obviously give it a good boost in trading dynamics going forward. Importantly, due to the nature of the cross holding that we’re creating, the transaction basically more than doubles the Prosus free flows, economic interest and the group’s underlying businesses to around 60% from where it is today at 27%.

We expect that the value of the free fall will rise to more than $100bn. This will take Prosus straight into the top 20 of the EuroStoxx 50 index. We believe the transaction that we’ve announced today will create immediate value for Naspers and Prosus shareholders, but it will also extend Prosus’ standing as Europe’s largest Internet company.

Bob van Djik on impact on the current share buyback:

There will be no impact that will be executed as announced [and] in the way that we said we would do it. We report on it very regularly because that is a regulatory requirement. The $5bn – up to $5bn Prosus share buyback is an additional one, that is specifically targeted at this transaction. But we want to make sure that post transaction this stabilises as well. That’s why we were committing up to $5bn to support it.

Bob van Djik on the chance of shareholders not wanting to participate:

We are confident not only about the short-term value creation, but also the long-term value creation of this. To put it simply, this is very much in the best interest of Naspers shareholders and Prosus shareholders. Again, the Naspers shareholders can tender. The last time we offered them an opportunity for value creation, 97% of them took it with both hands. We expect that the people will understand their best interests and will tender. We expect the vast majority of Naspers shareholders to [do it], just because it’s in their best interests. 

We are confident that will happen. That’s why we actually set it at that level and we’re confident that people will act in their best interest and tender. People who don’t necessarily see that, it might be a small minority – but that’s okay.

Basil Sgourdos on the decision to go to 49.5%:

Why 49.5%? There are many considerations to this transaction. One is the approval and the second is making sure that it’s efficient, effective and that you can move quick. This contract gets us there and gets us all the necessary approvals. This is a stable situation. To get back to where we are today, it’s another $200bn of value. That will take some time – even with our track record. Why two steps? Well, because you couldn’t actually do this step without being the first. You had to create Prosus in the way we did, to be able to get to this step. Had we tried it in one step it would have been inefficient, and would have resulted in incremental tax parts and leakage costs. That’s the one reason for the two step.

The second reason is we had to figure out a way to maintain the various elements of the outline here. Naspers domiciled Prosus offshore to maintain the tax grouping. We’re now able to do that and the structure that took a bit of time. The first step has given birth to the second. We couldn’t do it in one go without creating inefficiencies. We had to work through the first step and think about how we get to the next one – it wasn’t straightforward and [it] required substantive work. In fact, we worked over a year in getting through issues and getting on top of it.

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