By some accounts, the reason Naspers tied itself up in cross-holding knots in its attempts to reduce the yawning gap between its share price and the value of its investments, primarily Tencent, was the need to deal as efficiently as possible with a hefty tax headache.
Just how significant those tax challenges might be was demonstrated recently when Naspers/Prosus chief financial officer Basil Sgourdos had to sell Naspers shares worth R93m to pay the tax bill created by exercising 45,995 share options. The total value of that chunk of options was R155m and they generated a pre-tax profit of about R75m for Sgourdos.
For some, a huge tax bill is good news as it means you’ve notched up a fat profit. But for most, handing over large sums to the SA Revenue Service is more than a little painful.
The SENS announcement on the Sgourdos transaction said he exercised 45,995 options and sold 27,300 of them to cover taxes. The shares had been awarded to him over four years from 2014 to 2017.
After covering his tax liability, Sgourdos “took delivery of the remaining 18,695 shares in his recently established family trust”, said the SENS announcement.
It looks a bit grim when the taxman scoops up almost two-thirds of the options you exercise, but this was just one portion of the Naspers shares Sgourdos owns. That’s besides all his Prosus stock.
The details of the Naspers options exercised on July 13 highlight the awe-inspiring surge in the Naspers share price since 2014. Sgourdos was awarded 22,409 Naspers shares in September 2014, shortly after he was appointed CFO.
His appointment as CFO was extremely well timed; it occurred just before the steepest part of the rise in the Naspers share
The chartered accountant joined Naspers in 1994 and had stints at MultiChoice and Thai-listed United Broadcasting Corp, as well as two years in Amsterdam as general manager of the pay-TV business.
It turns out his appointment as CFO was extremely well timed; it occurred just before the steepest part of the rise in the Naspers share. This rise was determined by the surge of Tencent, of which Naspers held just over 30% at the time.
The Naspers share price had been increasing steadily since 2004 when Tencent was listed on the Hong Kong Stock Exchange, but the sharpest increase occurred after 2010.
The shares awarded to Sgourdos in September 2014 were priced at R1,272.66 each, and sold for R3,372 this month. That’s a profit of R2,099 on each share for a total of R47m.
If Sgourdos had been appointed CFO a year or two earlier, his profit would have been even bigger. In September 2013 he would have been awarded the shares at a bargain price of R564.
The collapse in the Tencent share price between early 2021 and mid-2022 will have caused considerable nervousness among Naspers executives as it meant any options granted after 2015 were below water. Sgourdos, for example, was granted shares at R2,323 in 2016 and at R2,755 in 2017.
But thanks to the dramatic recovery in Tencent since the second half of 2022, the Naspers share has clawed its way back to well over the R3,000 mark, ensuring there was profit in exercising them - which, of course, means more tax.
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