So, here’s the story. Naspers’s subsidiary Prosus is continuing to make hefty losses but could be on track to make a profit in the first half of 2025. Of course, whether or not it does is not too important right now because the biggest part of the latest story is that the executive team is dangling yet another discount-reducing plan in front of its shareholders. shareholders. One that involves Naspers reducing its holding in Prosus to below 50. And that plan appears to have already worked.
Prosus’s communications director Charlie Pemberton stresses this does not mean there’s been a change of control because of the Naspers and Prosus B shares. “A key tenet of this transaction and of the share exchange offer in 2021 is that control of Prosus by Naspers does not change. This was fundamental to approval of both transactions by the regulators,” Pemberton tells the FM, adding that the reason this is important is to ensure that Prosus remains a controlled foreign company of Naspers for SA tax purposes.
Judging by the share price movements the plan appears to have already worked.
Pemberton also tells the FM that because Naspers’ voting rights in Prosus won’t drop below 70% - thanks to the B shares – the latest deal will not affect the group’s tax status. “Prosus remains a controlled foreign company of Naspers, and Naspers’ will remain JSE listed and a South African domiciled tax resident company.”
Within minutes of announcing the planned unwinding of the crossholding between Naspers and Prosus, the share prices of both companies shot up, Naspers by 8.55% to R3,255 and Prosus by 5% to R1,353.
Though a smidgen off the high it reached after releasing its recent trading warning, this week’s price spike after the announcement takes Naspers’s share price close to the record high it reached in February 2021.
The latest plan, which is designed to remove the crossholding between Naspers and Prosus, is scheduled to be implemented in September 2023 — assuming shareholders grant their approval at the AGM in August.
In hindsight the crossholding looks to be a temporary contrivance, given that the limit on share repurchases by South African companies is a long-standing restriction.
And given that so many shareholders were vehemently opposed to the creation of the crossholding in the first place, it’s impossible to see how this proposal won’t get the go-ahead.
And let’s not forget the all-powerful B shares, which are controlled by the directors and by Sanlam and which ensure ordinary shareholders don’t actually have influence in the running of these listed companies.
While the immediate share price moves indicate investors are happy with management’s latest plan, it certainly didn’t mean they are now happy with management.
One analyst told the FM it was frustrating there was still no sign of Naspers or Prosus producing anything, “They’re still just rearranging the furniture, in fact they’re putting most of it back where it was a while ago.”
They’re still just rearranging the furniture, in fact they’re putting most of it back where it was a while ago
— An analyst
The hefty discount at which Naspers and Prosus have traded to the underlying value of the Tencent investment certainly has been the all-encompassing consideration for shareholders over the past several years.
This reflects the overwhelming dominance of the hugely valuable Tencent in the life of Naspers/Prosus, plus the fact that few shareholders have much faith in management’s ability to build up a portfolio of investments with much profit-generating ability. Essentially shareholders would prefer if management would move out of the way and let Tencent do all the talking.
Of course, it’s several billion dollars of investment too late for that. Instead, top management decided the best thing to do was buy back huge chunks of the heavily discounted shares.
It has helped, says the company in its latest results. Since launching the buyback programme, the combined holding company discount of Naspers and Prosus has declined from about 60% to 38% at end-March 2023. At end-March 2022 the discount was 55%.
The money for all those share repurchases came from the sale of Tencent shares. During the 2023 financial year, the group reduced its stake in the Chinese tech giant to 26.16% from 28.28%, bagging $10.7bn in the process.
Such is the importance of tackling the discount that last year the group’s remuneration policy was overhauled to focus on rewarding management for progress on this front. And the long-term incentive was scrapped for 2023.
The just-released remuneration report shows CEO Bob van Dijk is in line for a €3.1m discount-linked bonus and CFO Basil Sgourdos for €1.8m. The report says the bonus will only be paid on a successful reduction of the discount “at the discretion of the human resources and remuneration committee”. But it goes on to say there’s been such a material improvement, “the committee has deemed that the incentive should be paid”.
However, the bonuses aren’t banked just yet. The payout will only be made at end-March 2024 if the discount reduction is sustained or improved.
The remuneration committee is not considering continuing the discount-related incentive for 2024 and it is reintroducing the long-term incentive.
Certainly, the proposed restructuring will simplify things
Certainly, the proposed restructuring will simplify things.
Naspers will end up with 43% of Prosus, with the public owning the remaining 57% and Prosus will have no stake in Naspers. But getting there will be far from simple.
The sketchy details so far available reveal that 810-million new Prosus N shares will be issued pro rata to the Prosus free float. And 1-trillion new Naspers N shares will be issued, also pro rata to Naspers’s free float, followed immediately by a Naspers share consolidation of 2,300:1.
And, of course, there’s the Naspers B shares; 1.6-billion B shares will be issued to maintain the current Naspers control structure. This means that on completion of the restructuring, the B shareholders will continue to control 72% of Naspers.
As for financial 2023 results, well, it was pretty much more of what we’ve come to expect over the past several years.
Revenue from non-Tencent businesses was up and so were losses. But management is optimistic the group is on track to deliver profits in the first half of 2025 because trading losses in the second half of 2023 were down $111m on the first half losses.
Sasfin’s Alec Abraham tells the FM the results, including the lower contribution from Tencent, are in line with expectations. “The losses were expected to be higher in 2023 but are expected to now be at [a] peak.”
From here on investment in “new adjacencies” will be minimal, which means, in theory, it will soon be time for the e-commerce investments to start producing the goods.
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