The share prices of Naspers and Prosus jumped this morning after the companies announced their intention to remove the cross-holding structure which has added complexity for shareholders and increased the discount of the stocks to their underlying net asset value. This move is aimed at enabling the continuation of the share repurchase program announced by the Group in 2022. The Proposed Transaction will also eliminate the complexity associated with the current structure while maintaining the Naspers and Prosus Free-Float Effective Economic Interests. The South African Reserve Bank has granted the necessary approvals for the implementation of the Proposed Transaction.
Summary of the statement from Naspers & Prosus
Background and Rationale: The cross-holding structure has created limitations on the share repurchase program at the Naspers level and has introduced complexity to the organization. However, the Repurchase Program has been successful in creating significant value for both Naspers and Prosus shareholders, resulting in a reduction in the discount to NAV and unlocking substantial value. The limitation on the Naspers level is due to the South African Companies Act, which restricts the amount of Naspers shares that can be acquired through the Repurchase Program. The Proposed Transaction aims to remove this limitation and allow the Repurchase Program to continue at the Naspers level.
Overview of the Proposed Transaction: The Proposed Transaction involves several key transaction steps. Prosus will undertake a capitalization issue, issuing new Prosus Ordinary Shares N to Prosus Free-Float Shareholders, new unlisted Prosus Ordinary Shares B to Naspers, and new unlisted Prosus Ordinary Shares A1 to the holders of issued Prosus Ordinary Shares A. Naspers will waive its entitlement to Prosus Ordinary Shares N. Similarly, Naspers will undertake a capitalization issue, issuing new Naspers N Ordinary Shares to Naspers Free-Float Shareholders and new unlisted A Ordinary Shares to the holders of the issued Naspers A Ordinary Shares. Prosus will waive its entitlement to Naspers N Ordinary Shares. The Cross-Holding Agreement will be terminated, and the Cross-Holding Structure will be removed. The Proposed Transaction is expected to be implemented in the third quarter of 2023.
Voting and Tax Positions: Naspers will retain control of Prosus with a voting interest of approximately 72% following the implementation of the Proposed Transaction. Both Naspers and Prosus will maintain their tax residency and domicile in South Africa and the Netherlands, respectively. Prosus will continue to be controlled by Naspers, and Prosus and its subsidiaries will remain Controlled Foreign Companies of Naspers.
Conclusion: The intention to remove the cross-holding structure between Naspers and Prosus is a significant strategic move. The Proposed Transaction aims to address limitations on the share repurchase program, eliminate complexity, and create shareholder value. By aligning legal ownership in Prosus with the current effective economic interests, the Group seeks to streamline its operations and enhance market understanding. The implementation of the Proposed Transaction is expected to occur in the third quarter of 2023, subject to the requisite approvals from shareholders and regulatory authorities.
Full statement from Naspers & Prosus
NASPERS AND PROSUS ANNOUNCE THE INTENTION TO REMOVE THE CROSS-HOLDING STRUCTURE
INTRODUCTION
The board of directors of Naspers (the Naspers Board) and the board of directors of Prosus (the Prosus Board) are pleased to announce that Naspers and Prosus (together with their consolidated subsidiaries, the Group) intend to implement a proposed transaction in terms of which the cross-holding structure between Naspers and Prosus (the Cross-Holding Structure) will be removed (the Proposed Transaction). The implementation of the Proposed Transaction will enable the continuation of the share repurchase programme announced by the Group on 27 June 2022 (Repurchase Programme) at the Naspers level. The Proposed Transaction is also intended to remove the complexity created by the Cross-Holding Structure while keeping the Naspers and Prosus Free-Float Effective Economic Interests (as defined below) the same as they are prior to the implementation of the Proposed Transaction. This will be achieved through aligning the legal ownership in Prosus with the current respective free-float effective economic interests. The requisite approvals required to implement the Proposed Transaction have been obtained from the South African Reserve Bank in accordance with the South African Exchange Control Regulations.
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BACKGROUND TO THE CROSS-HOLDING AND RATIONALE
The Proposed Transaction is intended to address: (i) the limitation on the Repurchase Programme at the Naspers level arising from the Cross-Holding Structure, and (ii) the complexity arising from the Cross-Holding Structure.
The Repurchase Programme commenced on 27 June 2022 and, since inception, the Repurchase Programme has continued to create significant value for both the Naspers and Prosus shareholders and as at 31 March 2023, resulted in a c. 18% reduction in the discount to NAV at a Naspers level and c. 16% at a Prosus level, unlocking c. US$29 billion of value.
The Repurchase Programme is operating at both a Prosus and Naspers level to ensure that the Naspers Free-Float Effective Economic Interest and the Prosus Free-Float Effective Economic Interest (as defined below), remain in balance over time.
As the Repurchase Programme at the Naspers level is being implemented through acquisitions by one of its South African subsidiaries, there is, however, a limit under the South African Companies Act, 71 of 2008, as to the amount of Naspers shares that can be acquired in this manner pursuant to the Repurchase Programme. The Proposed Transaction will remove this limitation and enable the Repurchase Programme to continue at the Naspers level. This limitation does not apply to the Repurchase Programme at the Prosus level, which continues.
In addition, in August 2021 Naspers and Prosus completed an exchange offer in which Prosus issued new Prosus ordinary shares N (Prosus Ordinary Shares N) to the holders (Naspers N Shareholders or Naspers Free-Float Shareholders) of Naspers N ordinary shares (Naspers N Ordinary Shares) that accepted such exchange offer, in exchange for acquiring their Naspers N Ordinary Shares (the Exchange Offer).
The core objective of the Exchange Offer was to further reduce the oversized weight of Naspers in the Shareholder Weighted Index of the Johannesburg Stock Exchange (the JSE SWIX). Naspers was around 23% of the JSE SWIX immediately prior to the implementation of the Exchange Offer.
The implementation of the Exchange Offer:
- resulted in the Cross-Holding Structure in terms of which Naspers currently holds c. 60% of the issued Prosus Ordinary Shares N and Prosus currently holds c. 49% of the issued Naspers N Ordinary Shares;
- required the implementation of a cross-holding agreement between Naspers and Prosus on 27 May 2021 to ensure efficient and effective ongoing interaction between Prosus and Naspers through making distributions on a “terminal economic value” basis (the Cross-Holding Agreement). The “terminal economic value” distribution arrangements are entrenched in the Cross-Holding Agreement as well as through amendments to the articles of association of Prosus (the Prosus Articles of Association) and are referred to as the Cross-Holding Arrangements; and
- established the effective economic interests of the Naspers Free-Float Shareholders in the underlying Prosus portfolio currently at c. 43% (the Naspers Free-Float Effective Economic Interest) and the effective economic interest of the holders of the Prosus Ordinary Shares N (Prosus Free-Float Shareholders or Prosus N Shareholders) in the underlying Prosus portfolio currently at c. 57% (the Prosus Free-Float Effective Economic Interest), under the Cross-Holding Arrangements.
The introduction of the Cross-Holding Structure was a consequence of the Exchange Offer which, at the time, was considered by the Naspers Board and Prosus Board as one of the most feasible ways to reduce Naspers’s weighting on the JSE SWIX. The Exchange Offer achieved this objective and Naspers’s and Prosus’s South African listed shares represent approximately 9% of the JSE SWIX (down from 23% prior to the Exchange Offer).
The Group expected that the introduction of the Cross-Holding Agreement would reduce the complexity that comes with a cross-holding structure and clarify the market’s understanding of the true economic interests under the Cross-Holding Structure. Since its implementation, however, the Cross-Holding Structure is widely seen as a negative by shareholders. A common shareholder view is that the Cross-Holding Structure introduces excessive complexity, contributes to the holding company discount, and should be removed.
The Naspers Board and Prosus Board believe that enabling the continuation of the Repurchase Programme at the Naspers level and removing the complexity arising from the Cross-Holding Structure, pursuant to the Proposed Transaction, will allow the Group to continue to create shareholder value.
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OVERVIEW OF THE PROPOSED TRANSACTION
Currently, the Prosus Free-Float Effective Economic Interest is c. 57% and the Naspers Free-Float Effective Economic Interest is c. 43%, which is governed by the Cross- Holding Arrangements. The Prosus Free-Float Shareholders own their c. 57% effective economic interest partially through their direct ownership of Prosus Ordinary Shares N (c. 40%) and the balance (c. 17%) through Prosusās cross-holding of Naspers N Ordinary Shares.
It is currently expected that the implementation of the Proposed Transaction will involve the following key transaction steps:
- subject to obtaining the requisite approvals of the shareholders of Prosus (Prosus Shareholders), Prosus will undertake a capitalisation issue of (i) new Prosus Ordinary Shares N to Prosus Free-Float Shareholders (i.e. excluding Naspers), (ii) new unlisted Prosus ordinary shares B (Prosus Ordinary Shares B) to Naspers, and (iii) new unlisted Prosus ordinary shares A1 (Prosus Ordinary Shares A), to the holders of the issued Prosus Ordinary Shares A (collectively, the Prosus Capitalisation Issue). Naspers will antecedently and irrevocably waive its entitlement to Prosus Ordinary Shares N and consequently not receive new Prosus Ordinary Shares N under the Prosus Capitalisation Issue. Following the implementation of the Prosus Capitalisation Issue, Naspersās direct holding of Prosus Ordinary Shares N will be diluted such that it will be in line with the current Naspers Free-Float Effective Economic Interest of c.43% under the Cross-Holding Arrangements and the Prosus Free-Float Shareholders’ aggregate holding of Prosus Ordinary Shares N will increase such that it will be in line with the current Prosus Free-Float Effective Economic Interest of c.57% under the Cross-Holding Arrangements;
- subject to obtaining the requisite approvals of Prosus Shareholders, the articles of association of Prosus will be amended to facilitate the implementation of the Prosus Capitalisation Issue, including the requisite share capital changes and to remove all reference to the Cross-Holding Arrangements;
- subjecttoobtainingtherequisiteapprovalsoftheshareholdersofNaspers(Naspers Shareholders), Naspers will undertake a capitalisation issue of (i) new Naspers N Ordinary Shares to Naspers Free-Float Shareholders (i.e. excluding Prosus), and (ii) new unlisted A ordinary shares (Naspers A Ordinary Shares) to the holders of the issued Naspers A Ordinary Shares (the Naspers Capitalisation Issue). Prosus will antecedently and irrevocably waive its entitlement to Naspers N Ordinary Shares and consequently not receive new Naspers N Ordinary Shares under the Naspers Capitalisation Issue. Following the implementation of the Naspers Capitalisation Issue, Prosusās holding in Naspers will be diluted to a minimal level;
- subject to obtaining the requisite approvals of Naspers Shareholders, the memorandum of incorporation of Naspers will be amended to facilitate the implementation of the Naspers Capitalisation Issue, including to:
- convert the Naspers N Ordinary Shares and Naspers A Ordinary Shares from par value to no-par value shares;
- proportionally increase the number of authorised Naspers N Ordinary Shares and Naspers A Ordinary Shares to facilitate the implementation of the large- scale Naspers Capitalisation Issue; and
- facilitate the subsequent, proportional share consolidation of Naspers N Ordinary Shares and Naspers A Ordinary Shares to reduce the large number of Naspers N Ordinary Shares and Naspers A Ordinary Shares in issue as a result of the Naspers Capitalisation Issue;
- Prosus will sell its resultant minimal holding of Naspers N Ordinary Shares into the market pursuant to which the Cross-Holding Structure will be removed. Subsequently, the Cross-Holding Agreement will be terminated in accordance with its existing terms.
Post-implementation of the Proposed Transaction the Prosus Free-Float Shareholders will, in aggregate, directly hold c. 57% of the issued Prosus Ordinary Shares N, and Naspers will directly hold c. 43% of the issued Prosus Ordinary Shares N (both aligned with the existing respective effective economic interests).
Application will be made for the Naspers N Ordinary Shares and Prosus Ordinary Shares N proposed to be issued on implementation of the Proposed Transaction to be admitted to listing and trading on Euronext Amsterdam and on the Main Board of the JSE and A2X Markets, as applicable.
As the tax position of the Group will remain the same following the implementation of the Proposed Transaction, the costs for the Group to implement the Proposed Transaction are not expected to be significant and pertain to advisory fees.
The Proposed Transaction will also be subject to the requisite regulatory approvals customary for the implementation of a transaction of this nature, other than the approval required for the implementation of the Proposed Transaction from the South African Reserve Bank which has already been obtained.
The full terms of the Proposed Transaction will be detailed in the requisite documents to be published by Prosus and Naspers in due course in order to obtain the requisite approvals of the Prosus and Naspers Shareholders, respectively.
The Proposed Transaction is expected to be implemented in Q3 of 2023.
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THE GROUP’S VOTING AND TAX POSITIONS
Naspers’s voting interest and control of Prosus is determined by the total voting rights that Naspers has in Prosus pursuant to the Prosus Ordinary Shares N and the Prosus Ordinary Shares B that Naspers holds.
The current structure of the Prosus Ordinary Shares B will remain in place following the implementation of the Proposed Transaction and Naspers will retain control of Prosus with a c. 72% voting interest pursuant to the Prosus Capitalisation Issue.
Naspers will remain tax resident and domiciled in South Africa and Prosus will remain tax resident and domiciled in the Netherlands. Furthermore, Prosus’s tax status in South Africa will remain unchanged. Prosus will continue to be controlled by Naspers, form part of the same group of companies as Naspers, and Prosus and its subsidiaries will remain Controlled Foreign Companies (CFC) of Naspers.
SHAREHOLDER CONFERENCE CALL
Shareholders are advised that today Naspers and Prosus have made available a presentation on the Group’s audited financial results for the year ended 31 March 2023, which presentation includes information on the Proposed Transaction (the Results Presentation), which can be accessed by shareholders at www.naspers.com or www.prosus.com. Shareholders are also invited to register for a conference call during which Bob van Dijk, the Naspers and Prosus CEO, and Basil Sgourdos, the Naspers and Prosus CFO, will take participants through the Results Presentation. Details of the conference call are:
Date: 27 June 2023
Time: 16:00 CET
Web pre-registration: shareholders are requested to pre-register for this conference call by visiting www.naspers.com or www.prosus.com and following the instructions provided.
Amsterdam, the Netherlands
27 June 2023
JSE Sponsor: Investec Bank Limited
Legal Advisor: Webber Wentzel
Enquiries:
Charlie Pemberton
Communications Director
Mobile: +31 615 494 359
Email: [email protected]
Shamiela Letsoalo
Director, Corporate Affairs
Mobile: +27 78 802 6310
Email: [email protected]
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