The Naspers dilemma – it makes sense to take the Prosus stock

Naspers’s newly created subsidiary Prosus which will house the group’s global internet assets including its 31% stake in Tencent, had a bumpy birth. But in truth many South African shareholders will be grateful for the unscheduled delay of three months in the listing date. They will appreciate the extra time to mull over a tough decision.

As we heard on Rational Radio last night from ace money managers Jean Pierre Verster and David Shapiro, SA owners of Naspers shares have their own equivalent of Hobson’s Choice.

Accepting shares in Prosus will trigger a tax event – requiring the payment of tax on what in for some are spectacular capital gains. Opting for extra Naspers shares instead, avoids the tax, but leaves them a stock likely to trade at even bigger discounts to its underlying assets because Naspers will become the holding company of a holding company.

There’s a lot of sense in David’s recommendation of opting for the European-listed shares and paying the tax. For one thing, it will remove the double discount. For another, a cash-hungry SA Treasury is sure to soon consider bumping up the tax rate on capital gains. So it seems best to take the pain now. Rather than having to pay more later.

*If you missed last night’s Rational Radio – you can catch the full show here,

Comment from Biznews community member Michael Dennill:

From the comments on the tax issues of Naspers a crucial point has not been set out by your commentators. The new M shares (Prosus) will have a zero base cost. Such that the CGT is extremely onerous. Note also that the stakeholder would need to fund the CGT. Why not wait until after the listing & then determine if one wishes to sell some Naspers and buy some or all of Prosus. At least then you have a base cost of your original acquisition cost. I favour this approach as none of us know where Newco will trade. Yes, there is every possibility of a value unlock but this is by no means a certainty.