Naspers’ latest attempt to tackle its Tencent discount is only a tiny step in the right direction. The South African tech group has sold 1.5 billion euros of its shares in Prosus, the Amsterdam-listed spinoff set up last year to house its $150 billion stake in the Chinese gaming giant. Promising to buy back its own stock is a positive. But Chief Executive Bob van Dijk will have to do more if he wants to make a proper dent in the Dutch firm’s valuation gap.
Narrowing the discount at which Naspers trades has been van Dijk’s top priority since taking over in 2014. At times the difference between the tech investor’s market value and its 31% stake in Tencent was an eye-popping 50%. Parking the holding, along with Naspers’ stakes in online ventures like Russia’s Mail.ru, inside Prosus, was meant to help. The theory was that European investors who had previously been wary of owning a South African company would pile in.
For a while it worked. After Prosus’ float in September, the firm was worth more, not less, than the Tencent stake, although was still at a discount to the value of all its assets. It wasn’t to last. Shareholders were disappointed Prosus showed no signs of handing back at least some of its $6 billion cash pile. A failed 6 billion pound bid for Just Eat didn’t help. As of Wednesday, Prosus’ discount to the sum of its parts was around 30%, according to Breakingviews calculations.
The Prosus share sale might help, a little. Increasing the Dutch group’s free float may attract more investors, and help get it included in more stock indices. And, by using the funds to buy back its stock, Naspers’ own discount may shrink.
Yet Prosus’ valuation gap will likely persist. For one, shareholders may now worry about further disposals, creating an overhang. The bigger issue is Naspers’ enduring grip. It will still hold 72.5% of the Dutch group’s stock, and owns super-voting shares that kick in as soon as its stake falls to 50%. That means shareholders have little say in how Prosus uses its funds, and prevents any uppity activists from cracking the whip. If Naspers really wants a fair valuation for its Tencent stake, it will need to give up some control.
– South Africa’s Naspers on January 22 said it sold around 1.5 billion euros ($1.66 billion) worth of shares in Prosus, the international e-commerce investment group it listed in Amsterdam last September.
– Naspers on January 21 said it would place 22 million Prosus shares, priced at 67.5 euros each through an accelerated bookbuild with institutional investors. This increased Prosus’ free-float to 27.5% from 26.2%, and reduced Naspers’ holding to 72.5%.
– The South African group said it will use the funds to buy back its own stock over time.
– Prosus’ biggest asset is a 31% stake in Chinese web group Tencent.
– Prosus shares fell around 3% at 1406 GMT on January 22, while Naspers shares were up 0.6%.
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.