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NASPERS/Prosus management say they will maintain “open dialogue” with shareholders after 36 local asset management firms raised serious reservations about the groups’ plan to swop shares to reduce the discount between their share prices and the value of their investments.
“We always maintain an open dialogue with our shareholders and engage with them regularly. We have responded to the signatories of the letter that we received from some of our investors and also confirmed to all of our shareholders, via a Sens announcement, our continued commitment to ensuring management and shareholder interests are aligned,” the group said in response to BR questions.
The asset managers wrote in the letter believed the share swop plan will increase complexity in the group and reduce the likelihood of further corporate restructuring and value unlock for shareholders, whether immediate or longer-term. They also questioned the misalignment of long-term management questions.
Flagship Asset Management Fund fund manager Pieter Hundersmarck said on Friday “it is great to see the local asset management industry wake up to the misaligned incentives, gross overpay and value destruction at Naspers. The only question is what took them so long?”
Claude van Cuyck, executive director and fund manager at Denker Capital, which was one of the signatories to the letter, said they were confident Naspers and Prosus management would sort the issues out over time, but as custodians of the capital they held for investment, it was important also for them to continue to apply pressure to ensure value for shareholders.
He said it would be a “process” to get to a position between Naspers management and shareholders that would unlock the best value, as there were a host of issues that needed to be considered.
These included the other shareholders of Tencent Holdings – Naspers/ Prosus’ biggest asset – sensitivities among investors around legacy shareholding structures of media assets, voting structures, and not fully understanding the tax implications.
“It is clearly a complex issue, we understand this won’t happen overnight,” he said.
Vestact Asset Management director Byron Lotter said Naspers/Prosus was still one of the best stocks on the JSE, with substantial potential value unlock in time, and his personal view was Naspers management should consider unwinding their Tencent stake, possibly through a secondary listing on the JSE, leaving Naspers management to realise their other internet ambitions.
He said there was little synergy between Naspers’ investment in Tencent and the other internet business in the groups, while globally, the share prices of investment holding companies were not adequately reflecting the value of their underlying investments.
Lotter believed the share swop structure was “too complex”, and that if it went ahead, it would only be a matter of time before the unwinding of the Tencent stake needed to be revisited.
Naspers and Prosus, in their latest update late last week, said their structure “makes the end state of the transaction straightforward, through the cross-shareholding arrangement, with dividend flows clear and certain.”
And on the misalignment of management incentives, Prosus said the annual report to be released in a few weeks would involve an allocation of long-term incentives to align with Naspers/Prosus shareholders’ free float interests – currently 72.5 percent Nasper and 27.5 percent Prosus.
Prosus said its investments in e-commerce had delivered a rate of return above 20 percent in the last decade, and more would be realised post the proposed transaction structure.