Naspers has caved in to shareholder demands and announced the simplification of the business — in a move expected to lead to the ramping up of its record share buyback programme, which has created more than R500bn in shareholder value in the past year.
In reaction to the news that Naspers, a stock market heavyweight widely held by pension funds and portfolio managers, will wind down the cross-shareholding structure with its Amsterdam-listed tech investor, Prosus, shares in both entities surged, adding another R260bn in market cap on Tuesday.
The structure was set up in 2021 via a share swap deal under which Prosus issued shares to buy just more than 45% of Naspers, effectively moving part of Naspers from Johannesburg to Euronext in Amsterdam.
Unpopular
The unpopular, convoluted deal was aimed at shrinking the discount between the value of the two companies and their stake in their Chinese moneymaker, Tencent.
But the structure did not reduce the discount, forcing the company to launch an open-ended share repurchase programme last year as the latest in a string of corporate actions by CEO Bob van Dijk to crush the valuation shortfall. This time it had more success.
“If you look back a year ago when we started this open-ended buyback, you compare our share price performance with the JSE or the Nasdaq, we’ve had an exceptionally good year,” Van Dijk said.
“That buyback we want to continue because it’s worked so well. The shareholders I speak to, and I speak to many of them, are uniformly positive. So we want to be able to continue, and to do that we needed to make the change that we announced today,” he said.
Shares in Naspers jumped 8.7%, their biggest gain since July last year, while Prosus added 5.6%. The bullish sentiment in the stocks added R260bn to their market capitalisation. Both have gained between 32% and 40% over the past year.
Control
Under the deal, Naspers will remain the controlling shareholder in Prosus through super-voting shares but said the removal of the cross-holding would better reflect an economic interest in the investment vehicle under which Naspers holds 43% and the other shareholders 57%.
The move will also help to keep shareholders on Van Dijk’s side after they were irked by the complexity of the cross-holding structure.
“We have listened to shareholders who said they understood our efforts of rightsizing the companies on the JSE and on the Euronext but in the process we introduced this cross-holding. Can you not do something about it?” he said.
“Besides continuing with the open-ended buyback, we’re
also simplifying the group a lot. Particularly the SA-based
shareholders, they really like the fact that we’re removing this complexity.”
Analysts welcomed the plan.
“In the ever-evolving world of stock trading, the importance of a simplified ownership structure cannot be overstated,” said Shaun Murison, senior market analyst at IG Markets.
“Naspers and its subsidiary Prosus are taking a significant step thereto. The removal of the crossholding between these two giants simplifies the group, allowing the continuation of the share repurchase programme at the Naspers level. This strategic decision looks to further maximise shareholder value.”
Free float
In essence, the transaction will be executed by Naspers and Prosus issuing shares to their existing shareholders, with both companies waiving their rights to participate in the respective capitalisation issuance of new Prosus or Naspers shares.
Once the dust settles, this arrangement will result in Naspers’ direct ownership in Prosus aligning to its current economic ownership of 43%.
Economic interest usually refers to an ownership share of
a business or venture that only entitles the holder to receive distributions.
The remaining 57% ownership of Prosus will be in the form of free float, in line with Naspers’ current economic ownership of the Amsterdam unit.
There will be no change in Naspers’ voting interest in Prosus of 72%, and the latter remains a subsidiary of the Cape Town-based entity.
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