Companies

Understanding the Naspers-Prosus transaction

Naspers and Prosus have announced a transaction that changes the group’s financial structure. They hope this will reduce the large discount at which Naspers and Prosus trade to the underlying interest in Tencent and other assets. Tim Acker summarises the complexities of the deal and the actions Allan Gray has taken.

Naspers wants to address the long-standing gap between its market value and the sum of its parts in a share-swap deal. The deal is quite complex and involves a crossholding. In terms of the transaction, Prosus will issue new shares in exchange for a stake of about 45% in the parent, Naspers.

We need to elect whether our clients will participate in the transaction, which involves exchanging Naspers shares for Prosus shares. We are in the process of evaluating the options and will select whichever is in the best interest of our clients. The proposed share exchange is happening in August. Both options have merits, so the choice is not obvious.

We have two main concerns:

Engagement over the deal

We were approached to be involved in a process that led to a letter that was ultimately signed by 36 South African asset managers and delivered to the Naspers board. We were involved in the discussion process, but we opted not to sign this letter, as we generally prefer to engage privately rather than publicly. We first wanted to establish all the facts and we preferred to engage directly with the company.

We have engaged with management more than once to understand the reasons for the deal and we have raised our concerns with them. We have also written our own letter to the board outlining our concerns and some suggestions. The concerns we raised are broadly similar to those raised in the above-mentioned letter, with some nuanced differences, as well as specific recommendations.

Suggestions for the company moving forward

We are in favour of the group simplifying its structure over time. We recognise that management is limited in the simplification options available, given required approvals from South African regulators and potential tax considerations.

We are also in favour of increased share buybacks, which take advantage of the large discount and create value for shareholders.

The financial services, products or investments referred to on this website are not available to persons resident in jurisdictions where their availability or distribution would contravene local laws or regulations and the information on this website is not intended for use by these persons. This website is for information only and does not in any way constitute a solicitation or offer by Allan Gray Proprietary Limited or any of its associates or subsidiaries (collectively “Allan Gray”) to buy or sell any financial instruments or to provide any investment advice or service.

By selecting one of the countries below I confirm that I have read and understood the above and that:

(a) I am not a South African citizen; or 
(b) I do not reside in the Republic of South Africa; or 
(c) I am not otherwise a person to whom the communication of the information contained in this website is prohibited by the laws of my home jurisdiction; and 
(d) I am not acting for the benefit of any such persons mentioned in (a),(b) and (c) and 
(e) I confirm that any investment with Allan Gray is based on my own initiative and not due to any offer or solicitation by Allan Gray.

Cookies

Please refer to our Cookie Policy for detailed information on the cookies we use and the purposes for which we use them, all of which are essential for the operation of our website.

dismiss