EDITORIAL: Naspers control structure may deter more critical investors
Full-year performance should make Bob van Dijk’s pitch to investors in Euronext Amsterdam easier
Bob van Dijk, the Dutchman occupying the corner office at Naspers, should be happy with what the company delivered in the year to March.
The company posted a 26% jump in annual earnings, riding once again on the breakneck rise of Tencent. But it is the 14% narrowing of losses at its multitude of private equity style investments in e-commerce platforms that should leave him with an even bigger smile.
It is the kind of performance that should make Van Dijk’s pitch to investors in Euronext Amsterdam, where the company is due to list the e-commerce ventures in September, easier.
Over the past few years, the poor performance in these e-commerce entities had been one of the reasons behind the yawning discount between Naspers market value and that of its stake in Tencent.
To investors who are sceptical that e-commerce platforms can sustain and deliver returns to shareholders, Van Dijk can point to at least two consecutive years of narrowing losses.
Most importantly, he can hold up online classifieds, which houses OLX and Letgo, as a division that is starting to make money after it turned profitable for the first time in 2018, squeezing out $2m compared to a loss of $114m.
This positive trajectory adds to steps that Van Dijk has taken over the past year to solve the valuation headache. He has spun off and separately listed pay-TV unit MultiChoice, handing shareholders a company valued at more than R50bn.
He is in the middle of listing its e-commerce ventures, including Tencent, in Europe — a move he hopes will give the company a bigger pool of investors after it has become too big for its own backyard.
Van Dijk has something to show for his efforts. The discount has narrowed from nearly 50% a year ago to about 30%.
It is true that Europe has deeper capital markets and a wider pool of investors but it is also home to more activist investors, who sometimes use their stakes in companies to oust CEOs or force a change in strategy.
But at Naspers there are only two shareholders that really call the shots: Keerom and Naspers Beleggings. The duo control 53% of the votes through their ownership of more than 900,000 A-class stocks, which carry 1,000 times more votes per share than listed N-class shares.
The idea behind the arrangement is down to the company’s roots as an Afrikaans language newspaper publisher. It was meant to deter outsiders from building up a stake in the company and dictating editorial policy. Fair enough.
But the argument behind relocating its e-commerce assets to Europe with that control structure is thin. The company is not taking Rapport or the City Press to Euronext.
It’s less about protecting the independence of the group than making sure Naspers is immune to outside influence on a strategy investors might not like. If the owners of these super-voting shares buy into the strategy, management will continue to be as dismissive to European shareholders as it has at home.
For example, in 2017 Geneva-based investor Albert Saporta tried and failed to put pressure on Van Dijk to hive off the Tencent holding to shareholders as a way to solve the valuation problem.
Most recently, there was growing expectation that Naspers would use some of the $10bn windfall from the sale, reducing its stake in Tencent by 2%, as a distribution to shareholders via share buybacks or a special dividend.
It wouldn’t have been a totally bad idea because it would have fuelled a rally in the share price, thus helping management solve the valuation mismatch.
But Van Dijk and chair Koos Bekker have ruled that out. They are essentially telling investors to trust them that they can find the next Tencent with that war chest.
The problem is that loads of cash from deep-pocketed private equity firms, Japan’s SoftBank and tech giants like Alphabet are hunting for the same unicorn. Surely, SoftBank can outbid Naspers anytime with its huge $100bn Vision Fund, which pumps money into high-profile tech start-ups.
The bottom line is Naspers’s control structure could be off-putting to some would-be European shareholders, whose buy-in into the strategy is crucial to Van Dijk’s efforts to close the valuation gap.