It is no coincidence that the biggest chunk of the value of Naspers/Prosus comes from China, with Russia making a sizeable contribution until recently. The company’s governance style fits seamlessly into the autocratic style of these two global powers.
With just enough of a veneer of democracy to enable regulators to approve their listing on public stock exchanges, the companies’ voting structure ensured that the latest restructuring proposal would get the necessary shareholder approval. Indeed, the two groups’ high-voting shares (A for Naspers, B for Prosus) have ensured the passing of every resolution ever presented to shareholders since Naspers listed in 1995 and Prosus in 2019.
As it happens, the most significant resolution put to shareholders at the recent annual general meeting, which related to the proposal to clean up the corporate detritus created by earlier restructurings, was overwhelmingly supported by the ordinary N shareholders.
The unwinding of the bizarrely complex cross-holding structure makes life much easier for shareholders and analysts alike.
The unwinding of the bizarrely complex cross-holding structure makes life much easier for shareholders and analysts alike
Importantly, the one thing it doesn’t do is reverse Prosus’s holding in the group’s jewel, Tencent. A complex 2021 share-swap between Prosus and Naspers resulted in Prosus scooping up a 49% stake in Naspers and having an economic interest of about 60% in the group’s international assets, most significantly Tencent. Naspers then ended up with a 57% stake in this enlarged Prosus.
The just-approved cleaner structure, which involves the issuing of huge numbers of shares by both companies, will result in Naspers holding all the South African businesses as well as what’s described as a “controlling” 43% of Prosus. In turn, Prosus will own all the group’s international internet and e-commerce businesses, chief of which is Tencent. The majority of Prosus’s 57% free float will be held offshore.
There’s more. The approved restructuring enables Naspers to continue the all-important share repurchase programme, which was bumping up against South African company law restrictions.
All in all, it’s difficult not to suspect that this new structure was the plan from the outset. As Protea Capital Management’s Jean Pierre Verster says, the freedom of Naspers/Prosus to rearrange assets is hampered by the many regulators it has to deal with in two jurisdictions. This forced it to take a circuitous route.
The most vigilant of the regulators is no doubt the South African Revenue Service, which must be keeping a close watch on the effect restructuring will have on tax proceeds from the hugely profitable sale of Tencent shares. This may be why, in its circular to shareholders ahead of the recent AGM, the group makes it clear that Naspers will remain tax resident of and domiciled in South Africa and that Prosus will remain tax resident of 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 of Naspers’,” stresses Naspers.
Verster explains that if Prosus sells Tencent shares to a South African taxpayer, it will create a South African tax charge. Furthermore, Prosus can’t distribute the proceeds of Tencent share sales to Naspers without creating a tax charge for Naspers. However, Prosus can use the cash from the sale of Tencent shares to purchase Naspers shares.
But getting back to the autocratic governance style of Naspers/Prosus. One of the only three shareholders who bothered to ask questions at the Naspers AGM pointed out that the circular reminded shareholders that the super-voting A shares had been created to “ensure the continued independence of the group”. The A shares are controlled by nonexecutive directors Koos Bekker and Cobus Stofberg as well as by Sanlam.
Surely it’s not the intention of the board to place economic decisions with a class of shares that has hardly any economic interest in the company and that has conflicts of interest with such decisions?
— Naspers shareholder
The shareholder pointed out that an undesired side effect of the structure was that a small group of shares have a determining say in resolutions that have no bearing on the “independence of the group”. More concerning, he said, is that director appointments and remuneration are determined by this small group, which benefits. “Surely it’s not the intention of the board to place economic decisions with a class of shares that has hardly any economic interest in the company and that has conflicts of interest with such decisions?” asked the shareholder, who contends that this control situation contributes to the discount problem.
His question “Will the board ‘fix it’?” prompted a brusque Putinesque response from Naspers’s legal counsel, David Tudor, who stated that the control structure has been in place forever “and there’s no intention to change it”.
Which is why it doesn’t matter one iota that the latest Naspers AGM broke all known voting records — in a bad way. A staggering 94% of N shareholders voted against placing unissued shares under the control of directors, 79% voted against the remuneration implementation policy, 77% voted against the remuneration policy and 50% voted against approving a general issue of shares for cash.
But what do autocrats care about democratic whimsy?
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