Ten cents for your thoughts
Naspers hits back at investors critical of its hefty discount
Share buybacks, unbundling Tencent, listing its underlying companies, moving its primary listing ... what investors want
Naspers CEO Bob van Dijk has hit back at a shareholder who acccused him of destroying R600bn in shareholder value since his appointment three and a half years ago.
Albert Saporta, a director of Geneva-based investment advisory firm AIM&R, which has a small stake in the Internet holding company, wrote a critical open letter to Van Dijk last week. This is the second letter written by Saporta, who wants the company to spin off its 34% stake in China’s Tencent to shareholders.
In response, Van Dijk told the Financial Mail that it was unfortunate that Saporta did not attend Naspers’s December 12 investor day in New York "and take advantage of the opportunity to engage with management on the matter or make any other attempts to engage with us directly.
"We would be more than happy to have a conversation with Saporta should he want to engage with us directly," Van Dijk said.
Owing to its stellar Tencent-fuelled rise, Naspers is grappling with a unique problem: the company has outgrown its home market and investors want a concrete solution.
Naspers is trading at a hefty discount of nearly 40%, largely the result of structural issues related to where it is listed — the JSE.
Aside from the proposal to unbundle Tencent, investors such as Saporta have suggested that the company consider share buybacks, listing more underlying companies, and even moving the group’s primary listing.
Saporta’s other recommendations include setting a discount hurdle rate that, once breached, would trigger the company to buy back some of its shares. To fund this initiative, the
company should sell some of its Tencent stock.
Saporta also suggests that Naspers "take a page or two from the Altaba playbook". Altaba — an Internet investment firm — is seen by some as a cheap play on Chinese e-commerce group Alibaba.
"While Naspers destroyed R300bn of value in the past six months, Altaba increased shareholder value by $5bn from an equally large discount initially," he says.
Altaba has been "aggressively buying back shares" and is transforming itself into a "pure Alibaba tracker".
"Hence I would advise the following: you do not want to sell one share of Tencent? So be it. In that case, spin out the entire investment portfolio [ex-Tencent] to investors in a new company, with enough cash in it to sustain an investment strategy over the next two to three years. Hence Naspers will become a pure Tencent tracker."
Saporta reckons the discount on this new-look entity would probably settle within the 10%-20% range. The market would be able to value each entity "a lot more efficiently". It says: "The only route to effectively reduce the discount is either to sell some Tencent shares one way or another and buy back shares and/or spin-out entirely the investment portfolio so Tencent is separated from the rest and investors will be left with a ‘Naspers Tencent’ and a ‘Naspers VC’."
Management told investors in New York that the share discount is in large part attributable to SA’s haemorrhaging of capital over the past 18 months, and the fact that local institutions cannot fill the gap.
The magnitude of the discount is "not acceptable", says CFO
Basil Sgourdos, a shareholder in the business along with Van Dijk and other members of the management team.
"We’re pushing really hard to try to address [the discount issue]. There is no silver bullet."
To tackle the problem, the group is working on getting its e-commerce business to profitability, improving financial disclosure and shareholder engagement and expanding its American depositary receipt programme to access new pools of capital, Sgourdos says.
Naspers is not convinced the proposals put forward by investors would make a meaningful difference. The company is unable to move its primary listing because of SA’s exchange controls, while a secondary listing on its own would do little to reduce the discount.
It will, however, list some of its underlying businesses "when the time is right".
But Naspers has no plans to unbundle its stake in Tencent as exchange controls dictate that the shares would have to be listed on the JSE, which "doesn’t fix the problem", says Sgourdos.