Naspers/Prosus share swap approved – anything but plain sailing

The Naspers/Prosus share swap transaction has divided opinions across South Africa’s shrewdest investment managers. The resolution, which was approved on Friday, was a mere formality given the control structure between Naspers and Prosus. The transaction will see Naspers approximate 23% weighting on the Johannesburg All Share Index reduce significantly to around the 11-13% region. As a result of its dominance on the index, the primary rationale of the transaction is to reduce its weighting due to concentration risks as well as boost liquidity in Prosus, with its free float approximately doubling to around 60%.

In the interview below with BizNews founder Alec Hogg, chief executive of Naspers and Prosus Bob Van Dijk spoke about the benefits of the long-term shareholder value the transaction will create.

Van Dijk may have been talking his own book, but he mimics Protea Capital Management founder and hedge fund manager Jean-Pierre Verster’s insights on the transaction, who was initially skeptical on the share swap ratio used. At a second glance, Verster says understanding the transaction and its long-term benefits requires reading between the lines, which he believes has been overlooked by many in the investment community. These two interviews provide context behind the benefits of the transaction.

The Naspers/Prosus management team has been under pressure for years due to the widening discount between its share price and the underlying value of its investment in Tencent. The large discount, which sits around the 50% mark, is as a result of the complex holding structure between Naspers and Prosus and an opaque ownership structure in which Tencent holds it internet operations through a variable interest entity (VIE) in Hong Kong, of which the legality has never been tested. This is according to co-founder of Perpetua Investment Managers Delphine Govender, who has been one of the front runners in a stance of activism against the executives of Naspers and Prosus.

Many in the investment community are ‘sick and tired’ in the inability of the Naspers management to unlock value. There have been countless corporate actions over the last few years which have failed to deliver the results envisioned by Bob Van Dijk and his team. The capital allocation decisions remains suspect despite the latest set of annual results showing good growth in its food delivery and educational technology businesses. Despite the question marks, Naspers and Prosus shareholders have benefitted greatly over the years as a result of Tencent’s ability to grow exponentially. However, many argue this has very little to do with Bob Van Dijk and his team.

In the interview below, Asief Mohamed (CIO of Aeon Investment Management), Anthony Sedgewick (co-founder of Abax Investments), Delphine Govender (co-founder of Perpetua Investment Managers) and Shane Watkins (CIO of All Weather Capital) share insight on the collaborative engagement, signed by 36 asset managers which was put forward to the Naspers and Prosus executives in a stance of activism against the transaction.

Regular BizNews guest Delphine Govender goes a step further in this interview with Alec Hogg, explaining that shareholders really have no say in the matter given the control structure between the two holding companies. She also unpacked the complex holding structure and the risks of investing in China.

Who would’ve thought Koos Bekker’s original $32m investment (2001) in a then-small Chinese internet company would divide opinions like it has, almost 20 years later. The investment is now valued at hundreds of billions of dollars.

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