Johannesburg - For a company that spends billions of rand a year to ensure it remains at the cutting edge of 21st century technology, aspects of corporate governance at Naspers look decidedly mid-20th century.
The group’s annual general meeting (AGM) presents a great opportunity to step back in time to when shareholder meetings were tame, choreographed events that saw minimal engagement between shareholders and the executives who oversee their investment.
The recent AGM was dominated by white males in suits, all of whom sat quietly as chairman Ton Vosloo dutifully read out his statement without once departing from the script. The only question came at the end of proceedings from a shareholder who stood out not just because he asked a question but because he wasn’t dressed in a suit – and had long hair.
At the end of the meeting the company refused to provide Business Report with the detailed results of the voting on the legally accurate grounds that they are not required to. “We don’t give out the details; all the resolutions were passed by between 84 percent and 100 percent of the votes and about 82 percent of shareholders were present and voting,” was the response. Hardly surprising, perhaps, from a company with a notoriously opaque control structure that involves low-voting “N” shares.
A rather audacious attack on that structure by PSG’s Jannie Mouton in 2005 saw the insertion of an additional brick in that control wall, called Wheatfields, in which Naspers chief executive Koos Bekker has a 25 percent stake.
A few floors from the 17th floor’s executive wing where the old-world AGM was held, battalions of programmers were at work trying to ensure Naspers remains at the cutting edge of internet technology. They are part of the army of programmers and developers across Naspers’s global operations who played a part in spending the R4.3 billion the group committed to the development of its e-commerce business last year.
The question asked at the AGM was about the wisdom of spending so much on e-commerce. Although the query was not posed in an aggressive manner, the atmosphere seemed to get tense.
Most of the attendees were shareholders, who have benefited enormously from the unprecedented and sustained surge in the share price to Friday’s level of R890. In the past year the share price has risen 80 percent, putting it on a price-to-earnings rating of a staggering 51 times. Anyone in the room who had bought their shares more than 12 months ago was probably so overwhelmed by gratitude that Naspers’s strategy must have seemed beyond questioning.
Long-term shareholders who stayed on board as Bekker steered the company from being wholly dependent on print media to one that is a major international player in internet-based business will have few reasons to query his latest project. Not necessarily because they understand the details of his ambitious e-commerce plans but because he has successfully steered Naspers through some choppy waters since he brought M-Net to it in 1985.
Looking back on the past 25 or so years, choppy waters seems to be where Bekker is comfortable. Some say his attraction to choppy waters may explain why he tries to choreograph so much of his immediate environment.
The high-margin, cash-pumping ability of Naspers’s pay-TV operations, including MultiChoice, DStv and Supersport, makes it easy to forget that it is only in recent years that this side of the business has lacked major challenges.
In 1985, three years after Sun International’s Sol Kerzner’s was apparently refused, Bekker’s Naspers was granted a pay-TV licence by Pik Botha, then minister of foreign affairs. It was granted on condition that the other three major media companies, Argus, SA Associated Newspapers (SAAN) and Perskor, were brought in as M-Net shareholders. This was intended to make up for their loss of advertising as a result of the establishment of SABC television in 1976.
The same four were part of a consortium that was granted a cellular licence in 1993.
For M-Net’s first 10 years of existence, it faced the usual problems that come with the introduction of new technologies, which require constant innovation, and a product that needs consistent marketing.
From the early 1990s, the push into Africa and other emerging markets, as well as the continual need to innovate, meant shareholders were under constant funding pressure.
From 1995, shareholders also had to contend with the volatility of the rand, which caused anxiety as most of the pay-TV content was sourced from outside the country. As recently as 2002, the board cautioned shareholders that pay-TV remained exposed to the vagaries of the rand and that it was a mature business.
“The pay television market in South Africa is reaching maturity, and subscriber growth will decline in future,” the board said when the subscriber base was 1.28 million. However, demand grew beyond the board’s expectations. The 2013 annual report shows the subscriber base in South Africa is 4.5 million with an additional 2.3 million subscribers elsewhere in Africa.
A challenging time for Bekker was in 1996 when Remgro sold Nethold, which housed M-Net/MultiChoice’s international operations, to Canal Plus. Bekker, who had been Nethold’s head, moved back to South Africa and was appointed chief executive of Naspers in 1997. He focused on growing its non-print media assets, which included investing in some dogs as well as paying $32 million (about R250m at the time) in 2001 for 48 percent of Chinese start-up Tencent.
Over the years the Argus (renamed Independent News & Media South Africa and now under new owners) and Perskor (which struggled to survive and was taken over by Caxton in 1998) sold off their M-Net/MIH and MTN shares. Johncom, the holding company for SAAN, built up its stake in MTN, in part by exchanging M-Net/MIH shares for MTN shares with Naspers. In 2002, MTN was unbundled from Johncom.
Naspers’s accumulation of M-Net/MIH shares was only completed in 2007 when, with the help of fund managers Allan Gray and Coronation, it managed to secure the 38 percent stake in DStv and Supersport that was unbundled.
In the early years Naspers used the sizeable cash flow (in 1980s terms) from profitable magazines such as Huisgenoot to build its stake in M-Net/MIH and grow that business. As Bekker explained at the AGM, today it is using the hefty cash flows from MultiChoice to build its internet business.
Some Naspers fans say the prospects for these businesses more than justify the current share price. Others say that allowing for the conservative treatment of research and development expenditure means the share price is well supported by earnings.
“Tencent and Mail.ru account for 95 percent of Naspers’s market capitalisation,” one shareholder said. “We’re getting pay-TV and print media for free.” He said it was hard to imagine that the regulatory environment in Russia and China would turn against Naspers’s position as a significant player in local industry. “Hard, although not impossible, given the volatility of the regimes,” the analyst said.
A fund manager, who said Naspers was “very rewarding for our investors”, noted that a greater threat would be the arrival of new technology, rendering much of the group’s investment redundant. Another fear is the possibility of Naspers failing to secure an unassailable position in an e-commerce business that has low barriers to entry and low margins.
The more cautious also fret about Bekker’s departure next year, which means he will not be around to steer the group through the choppy waters that have become part of its life and the lives of its shareholders. - Business Report