Why so long to undo Naspers and Prosus share structure?

Removal of the cross-holding will undoubtedly reduce complexity, say experts. File

Removal of the cross-holding will undoubtedly reduce complexity, say experts. File

Published Jun 28, 2023


Naspers and Prosus’ plans to unravel its complex cross-holding structure while applauded by commentators and analysts yesterday, also drew some sharp criticism because of the length of time management took to do so.

Vestact Asset Management portfolio manager Michael Treherne said the removal of the cross-holding should have been done when Prosus was initially spun-off into a listing in 2019 (Naspers management were told so at the time by analysts and shareholders).

He said the aim of the unwinding now was for Naspers to be able to continue to buy back shares.

He said according to recent estimations Naspers’ discount to net asset value (NAV) stood at 52% and Prosus’ discount at 43%, and while the buybacks initially narrowed the discount somewhat, these had subsequently continued to widen.

“The real question is why don’t they just spin out the investment in Tencent, their biggest investment, and let shareholders get the real value of Naspers’ investments,” he said.

Anchor Capital Fund Manager Mike Gresty said news of cross-holding removal was almost certainly the reason for the rise in share prices as the results did not contain anything particularly market-moving in his view, He added that a trading update had already provided high level detail to the market on the results

“Removal of the cross-holding will undoubtedly reduce complexity. Given the volume of companies that global investors need be on top of, there is an extreme aversion to having to deal with companies that have cross-holding structures,” said Gresty.

“Given how the discount blew out in the period immediately after the cross-holding came about, I think it is safe to say its removal can only be positive for the discount. Initial share price reaction supports that view.

“I think they did a good job of presenting the results in the most positive way possible. The fact that core Heps declined and losses in the e-Commerce division widened mean this set of results were not great. However, the direction of travel (narrowing losses in e-commerce in 2H in particular) was encouraging.”

“I certainly believe that the group is well on track to reach its target of e-commerce profitability in 1H25,” said Gresty.

Richard Cheesman, a senior investment analyst with asset manager Protea Capital Management, said in a Reuters report: "It is a relief that the group is reversing some of the previous convoluted structuring.“

"It is unfortunate that it has been such a long journey with significant costs along the way," he added.

The Naspers announcements also generated traffic on Twitter. Deon Adams (@DeonAdams) commented: “Naspers/Prosus needs new leadership. The new AI revolution presents huge opportunities for a scalable business such as Naspers, but as things are, they will miss the bus.”

The Real McCoys (@therealmccoys) tweeted “Naspers and Prosus report nearly halved annual profit due to reduced stake in Tencent Holdings. Naspers revenue up 7.6%, Prosus up 10%. Both committed to achieving consolidated e-commerce profitability in FY25”

Philani Mkhwanazi (@Mkhwanazi) tweeted: “There is no bigger Ponzi scheme than Naspers right now... Whichever bank that has that mandate has been feasting for the past 5 years, at least. How is management agreeing to all of these suggestions, every year! Just give shareholders Tencent because there are no new ideas.”

Prosus Constructivist (@ProsusForAll) commented: “I think Earvin Tu (Prosus CIO) has been an absolute boon for Prosus/Naspers. Since joining as CIO, the capital allocation across the complex has massively improved (though I don't know what involvement he had in the almost disastrous BillDesk deal announced August 2021).”