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Another case of overpaying in the Naspers/Prosus stable …

While Anglo American sees some interesting share price movements, Shoprite shareholders celebrate, Tongaat should beware of activist investors, and Brikor and AEEI span the spectrum of apathy.
Tax is an oft-stated reason for buying back shares, so what will come of proposals to levy a 2% tax on the value of repurchased shares in the US? Image: Shutterstock

Late October 2020 turned out to be about the worst time possible for Naspers/Prosus to announce and implement a $5 billion share repurchase programme. Naspers/Prosus have hoovered up tens of billions of rands of their own shares since the November 2020 announcement.

The steady decline in the share prices during the past six months means the two companies have ‘overpaid’ to the tune of billions of rands for the shares they bought in that time.

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It is of course impossible to get market timing right, which is one of the reasons critics oppose share buybacks; the directors of the repurchasing company are expected to be able to second-guess the market, and it doesn’t often turn out well.

The China factor

In the Naspers/Prosus case the repurchase programme was announced just days before the Chinese government gave its first indication that things might begin to get a bit rough for that country’s massive tech companies.

At the beginning of November 2020 Alibaba announced, after regulatory intervention, that it was scrapping the $35 billion initial public offering (IPO) of financial giant Ant Group in what would have been the world’s largest ever listing.

Most commentators, and also apparently Alibaba founder Jack Ma, assumed the Chinese government would not want to interfere with such a high-profile global event – particularly one that would beef up China’s credentials as an investment destination. But interfere it did. And it continues to interfere.

Free market fundamentalists seem to be struggling with the notion that a government, even the Chinese government, would interfere with the workings of the market.

They continue to struggle with that notion, despite the daily new evidence.

Read: Naspers and Prosus plunge as China game crackdown fears grow

It may well be that, having consolidated his power base, Chinese President Xi Jinping will soon ease up and allow the country’s powerful tech industry to resume a business-as-usual profit-gouging strategy.

This may be the thinking of the Sanlam/Koos Bekker/Cobus Stofberg-controlled Naspers board. Why else would they not sit back and see where this bumpy ride ends before pumping billions more rands into a value-destroying share repurchase programme?

Anglo American

Anglo American’s repurchase programme hasn’t involved quite as much drama or money but it has been accompanied by some interesting share price movements.

Shortly after the end-July (2021) announcement that it would be buying back $1 billion of shares, the share price surged to a 10-year-plus high of R699; it has since slumped back to its current level of R601.19.

Anglo American share price

Tax is one of the oft-stated reasons for buying back shares – instead of paying more dividends – so it will be interesting to see what comes of proposals by US Democrats to levy a 2% tax on the value of repurchased shares.

If that proposal took root in the US, would SA follow suit?

Wiese cashes in at Shoprite …

On the subject of paying more dividends, Shoprite shareholders were no doubt thrilled by the hefty hike in their full-year payout – up 42% on the previous year’s dividend.

Read: Shoprite profit gains as grocery shoppers spend more per visit

Inevitably some commentators noted the benefit that would accrue to major shareholder and former chair Christo Wiese.

Wiese owns 63 million Shoprite ordinary shares, equivalent to 10.7% of the company, putting him in second place behind the Government Employees Pension Fund, which holds 14.3%. Of course Wiese’s preference shares do give him added influence on the board.

It’s not that the company couldn’t afford the more generous dividend; after a brief setback a few years ago there seems to be no stopping this formidable retailer.

And then what should we make of the unexpected departure of non-executive director Alice le Roux from the Shoprite board? Le Roux, who is a chartered accountant and was a member of the group’s audit and risk committee, was only appointed to the board in 2018. The traditionally bland statement that Le Roux had informed the board she is not available for re-election at the next AGM is hopelessly inadequate given the circumstances.

Tongaat’s AGM

Meanwhile, over at Tongaat last week’s AGM showed little sign of a brewing shareholder revolt. Even the remuneration votes were well-supported.

Mind you, with only 64% of shareholders in attendance at the meeting there is lots of scope for an activist to build up a worrisome block by buying up shares from the evidently apathetic shareholders who hold the remaining 36%.

Read: Tongaat Hulett posts wider headline loss of R1.1bn

Apathy … and its opposite

Talking about apathy, Brikor is the latest company to report a no-show at the shareholder meeting called to discuss the opposition to its remuneration policy.

One thing you can’t accuse African Equity Empowerment Investments (AEEI) of is apathy. Last week it enthusiastically reminded shareholders that British Telcommunications SA (BTSA) did not have the authority to exercise an extremely valuable call option.

Exercising that option would threaten AEEI’s hold on an extremely valuable contract with the British company. Unsurprisingly BTSA believes differently.

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And not a word about Fairvest’s meeting of last week where management had investors over a barrel – either a huge once-off payday to “internalise” the manco or pay higher “management fees”. How is this allowed to happen??

Up nearly a bar on AGL. Soon.

From 2019 to now Prosus overpaid billions of dollars in acquisitions over and beyond what they paid on buy-backs. Shareholders should be more concerned about buying unicorns at double and triple what US VC and PE firms passed on!

End of comments.

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