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Asset managers slam Naspers, Prosus

Band together to share strong words about proposed share swap and executive pay.
One CIO notes that Naspers/Prosus CEO Bob van Dijk (pictured) has made some value-destructive decisions, and been paid hundreds of millions. Image: Jasper Juinen/Bloomberg

In a move that is without precedent in South African corporate history, 36 asset managers have sent a strongly worded letter to the boards of Naspers and Prosus highlighting their concerns about the proposed share exchange between the two companies and the long-standing misalignment of the executive compensation system.

The asset managers, which include Naspers’s single largest shareholder the Public Investment Corporation (PIC), represent total assets under management of more than R3.6 trillion.

Significantly, three of South Africa’s largest asset managers – Allan Gray, Coronation and Ninety One (formerly Investec Asset Management) – have not signed the letter.

It should be noted that Ninety One CEO Hendrik du Toit is a member of the Naspers board.

Asset Managers and Investors who co-signed the Letter
36ONE Asset Management
Abax Investments
Aeon Investment Management
Afena Capital
All Weather Capital
Aluwani Capital Partners
Bateleur Capital
Benguela Global Fund Managers
Comgest
Counterpoint Asset Management
Denker Capital
Excelsia Capital
Fidelity International Limited
First Avenue Investment Limited
Gepolis
Granate Asset Management
Kagiso Asset Management
Laurium Capital
Mazi Capital
Melville Douglas Investment Management
Momentum Outcome Solutions
Nedbank Private Wealth
Nedgroup
Optimum Investment Group
Perpetua Investment Managers
Perspective Investment Management
Public Investment Corporation
Prudential Investment Managers
Sentio Capital
Truffle Asset Management
Visio Capital
Vunani Fund Managers

The proposed share swap represents another attempt by Naspers/Prosus management to reduce the yawning discount between the value of the Naspers/Prosus shares and the underlying value of its key investment, Tencent.

The proposal has met with widespread criticism since it was announced last month, with analysts and investment managers stating that it will add to the complexity of the control structure without achieving any reduction in the discount.

Read:

In the weeks after the deal was announced Naspers/Prosus CEO Bob van Dijk told the media that the more they interact with the shareholder base, the more support they are getting.

This week’s letter, sent to the board members on Wednesday evening, suggests that support is at best patchy.

The unprecedented move by the asset managers may be nothing more than a huge embarrassment for the Naspers/Prosus boards given the control structure involved. Unlisted entities control Naspers through high-voting A shares; Naspers in turn controls Prosus through its current 72.5% holding.

The unlisted entities at the top of the structure are controlled by Naspers chair Koos Bekker, non-executive director Cobus Stofberg and Sanlam, among others.

‘Problematic’

In the letter, addressed to Bekker and Ninety One’s Du Toit, the asset managers say they find several aspects of the proposed transaction problematic.

“We are of the view that it introduces elements which serve to increase complexity in the overall company structures, thereby reducing the likelihood of further value unlock, whether immediate or longer-term.”

The asset managers say they took the unprecedented step of going public with their concerns because, after communicating with the executive management team, they have not been given a clear understanding of how their views have been interpreted.

According to the asset managers, the introduction of cross-shareholdings between the two companies will inhibit subsequent corporate restructuring and defer the potential unlock of trapped value. “It would be unique for this instance to result in the opposite,” they say.

Incentives

Their letter also raises the long-running concern of the misalignment of management incentives, which they believe could result in the discount widening further after the proposed transaction.

Read:

“We reiterate previous concerns raised individually, that the management incentives in Prosus are dominated by the performance of Tencent and are not sufficiently connected to the unlisted companies within Prosus.

“This reduces alignment between management’s decisions in respect of the unlisted components and how their own capital allocation decisions are ultimately accounted for and assessed,” say the asset managers.

To be more specific …

Shane Watkins, chief investment officer of one of the signatories, All Weather Capital, told Moneyweb on Thursday morning that it must be placed on record that they do not agree with Naspers/Prosus management’s assertion that they have created significant value in the recent past – especially as it relates to the performance of Van Dijk, who has been paid hundreds of millions of rands.

“The truth is that he has made some value-destructive decisions, the most material being the sale of the stake in Allegro [which was sold for $3.2 billion, and on listing  had an implied valuation of $21 billion], the first sale of Tencent shares at HK$405 versus the current price of over HK$600 [around US$5 billion left on the table), and of course the discount in Naspers has actually widened since the listing of Prosus,” said Watkins.

He added that 100% of the value created has been through an uplift in the Tencent price – “where Bob [Van Dijk] has no participation or input whatsoever”.

“Against this background we find his arrogance and dismissive attitude towards us stupefying.”

Read: Naspers AGM: The antithesis of shareholder democracy

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COMMENTS   36

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You wonder why South African companies are struggling to compete and shine on the international stage? Here is a great example of “greed and manipulation” on a grand scale.
With behavior like this, the end is near, for shareholders first and then company…

Koos B has ignored many influential people before – at his peril and sometimes to his benefit – he will probably get Du Toit to lead the defense.
Let’s see what happens – Naspers is not for turning, usually.
and with so much at stake for the exec decision makers – difficult to predict.

The ugly side of capitalism.

Indeed this behaviour is what has been corrupting capitalism since the advent of and widespread usage of “incentives”. Do your job and get paid a fair wage. None of these hobgoblins would be anyweher without their people, shareholders and customers. What places them so infinitely ahead of the pack?
Stellenbosch mafia indeed.
Note about 91 and AG. Where were they during the Brett Kebble era? Everyone seems to have conveniently forgotten the shady corruption that went on there, with many partners in the crime.

The ugly side of *human nature. Don’t make the mistake of thinking people are saints under communism/socialism..

Greed and deceit by Prosus and Naspers management & executives on a grand scale.

This does not sound good…. I hope they can sort it out. Well done for the asset managers who got involved. If things get too complex it makes you wonder if the complexity is just a web around a den for stashing cash greedily or hiding things. I crave simplicity.

Very much their culture since the days of the media monopoly in the Apartheid years.

Are you still happy to invest in Naspers/Prosus?

With one or two exceptions most of the names on the list have little relevance in the real world of asset management. Any fund manager that does not like the way the Naspers management behaves is free to wind down their exposure and explain their actions to unit trust holders. The absence of Allan Gray, Coronation and Ninety One is telling. There are a number of other big managers that are not included

This is a rather uninformed assessment, absence of managers proves absolutely nothing. It’s an overwhelming collective of of AM’s who don’t forget are owners of the company, why should they just wind down exposure? It looks as though management have no clue how to unlock value, so want to bleed it dry from the inside to unlock value for themselves.

Who’s companies are they anyway?

Allan Gray, Coronation and Ninety One (formerly Investec Asset Management), would you please stand up and be counted!
Bob van Dijk`s actions and attitude (which borders on arrogance) is disturbing and cause for concern. He is becoming very much a law unto himself.
Another “Markus Jooste” in the making?

Isn’t Naspers an asset manager itself? Doesn’t it manage the Tencent asset?

Yes they look at the share price and pay themselves billions for doing so

Big players such as Allan Gray (and others) burnt their fingers not so long ago with Steinhoff, which resulted in substantial losses for investors.
These asset managers were all fooled and misled by Jooste. Are they being blindsided by Bekker of Naspers?

A different audit firm would not let Tencent be consolidated. Too few shares, ongoing sale of shares for solvency, no influence on anything, no call on cashflow. The auditors are taking a big risk.

This madness (like with ARC) where the journal entry that management prepares of how much the bets are worth, determines management’s salary, must stop.

Given the size and frequency and scatter approach of management bets, this outfit is exactly like was the case with Steinhoff : impossible to measure and compare over time because management adds new metal balls and flaming soft toys to the juggling act every week. The risk and audit committees need to insist purchases can only be funded by operations, debt or sale of assets other than TenCent…

Why not return the cashflows from Tencent to shareholders?

If they do that, thousands of workers and execs would need to be retrenched and the play play business that Van Dijk ad Bekker play would be closed down – BUT shareholders would benefit greatly

What a joke. Naspers got lucky with Tencent, bottom line. All their other investments are gambles.. Bob is useless, just using smoke and mirrors instead of investing in valuable businesses…
This is the beginning of the demise

Hardekop Afrikaner (who got lucky) and Hardekop Hollander (who got appointed because previous CE’s resigned) – – – – – – – – interesting to sit as ex-shareholder and see this unfold – yes I cry sometimes but happy to have cashed out

The reality is that ‘luck’ plays a role in many success stories. But we won’t admit it even if it played a big role in our success.

This article highlights a major flaw in the stagnant JSE. Coronation, Allan Gray and Investec/91 never stand up to be counted. But, this is too superficial. The real problem are the investors, especially pension funds, who allocate money to these asset managers.

Bob speaks of an immediate value unlock. Where Bob, I dont see it and I dont understand it. The proof is in the pudding. Naspers has barely had an up day since this transaction was announced.

This management team continuously remind investors that they have created value. But, as this article highlights they dont seem to know what the are doing. Bob was the CEO of Allegro. He gave it away, allowing a private equity firm to unlock the value. Obviously the private equity players have the smarts poor Bob can only dream of.

Let me say that again. Bob was the CEO of Allegro and was made to look stupid by players who actually know something about creating value.

Bob, continues to talk about how the initial listing of Prosus added value. Where’s the math on this Bob. You called the Prudential analyst “absurd” when he highlighted the math!!!!

If you are invested in Naspers and are unhappy with this BS. Address this issue with the trustees of your pension fund. Tell your broker to ask questions when invited to by AllanGray, Coronation and 91 dazzling presentations and cheap lunches.

Its your money, do you want it managed by a jellyfish with no principles or backbone??

These are the same asset managers that cannot outperform the Index. How many asset managers can actually run a business creating value to society instead of trying to be gamblers in an industry they created in which they never lose.

Yes. I fired my last so-called financial adviser for refusing to divest from Allan Gray. At that stage i was do
‘down’ over 5% on a rolling 5-year.
And Nedbank property. Lost me 35% within a year.
Financial advisers? Dinosaurs more likely as with the other asset manager prehistorics in their multi-million cages, Attended 2 seminar at 91 dn AG. That was our (investors)’money dripping like the hanging gardens of Babylon.
And these guys are the highest paid vocations apparently.

You are not compelled to follow any advice. So why did you? You went from Allan Gray to………Bitcoin! It is easy to blame your advisor and fund manager but I suggest you also look in the mirror.

One gets the feeling that Naspers/Prosus management uses the excuse of regulatory complexity to stop them doing what would actually close the discount. No doubt there are regulatory impediments to a cleaner structure but so far all their legal minds and creative energies have been focussed on preserving the status quo. If they really wanted simplicity they would find a way of doing it.

NPN and PRX on a nice downward trend … and will remain for sometime.

PRX broke the 1400 threshold.
NPN targeting 2800 … and I got a feeling its going to break 2800

looking forward to the new lows!

Thanks Prosus / Naspers management…. I bailed out at the right time… You guys are definitely also filling your pockets!

If ever there was an argument for disallowing dual class voting shares, this would be a perfect case study. The JSE needs to change the rules.

Nasper & Prospus = Steinhoff 2.0?
Bob Van Dijk = Markus Jooste 2.0?

The working class is always getting the short end.

Here’s a little scenario:
1. Problem “We need more profit for shareholders”
2. Quick Solution “Retrench people = better margins”
3. Impact “share price inflates”
4. Exec “Scoops big bonus”
5. Retrenched individual “Steals food to feed his family”
6. Retrenched individual “gets locked up for 5 – 10 years”
7. Public “discover fraud and theft on Exec level”
8. Exec “walks around freely”

Conclusion:
The justice system is only there to protect the rich and screw the poor. That’s how it’s been for millennia – history truly does repeat itself.

Thank you for anyone who runs a decent business and looks after their employees and families.

Can someone explain in layman’s terms what is going on here.

If the Naspers shares trade at a discount does it means the issued share capital is less than the value of the company?

If so, why is that a problem?

Why did Naspers create Prosus, instead of issuing more shares?

Why not a dual listing?

Much appreciated.

I like capitalism (generally) as a model.

But it’s high time we started finding better solutions to executive pay when they destroy value for shareholders, run up debt and generally have no real vision for the company future – and that’s what’s happened with Naspers.

Same goes for environmental concerns but that’s another story on its own.

There is an attempt with the new coined term “stakeholder capitalism” (extremely popular pushed by all major corp) .. except that it’s more like a superficial attempt to address concerns of people. A feel good while buying the product. A good example of what I mean is recycling or even “carbon credits”.. you know where every company now is or plans to be carbon neutral.

Now on paper you see it as no carbon added to environment but reality is a bit more murky in that they will reduce as much as possible(limited by feasibility) but then offset remainder with investment or purchase of credits to negate carbon produced.

Cool.. but not really as that’s where things get murky as in some cases an existing forest can be repackaged as a credit for not deforesting.. but that didn’t technically remove more carbon did it(in theory you prevent it being removed). I mentioned recycling as it as the similar issues.. everything is recyclable but is it really and the many decades we’ve had recycling symbols on plastic items hasn’t really translated into a massive amount of recycling.

My point is.. it’s good that people are more actively keeping an eye on things but sadly we get fooled too often by smoke end mirrors.

With the US decades of monetary policy starting to bite maybe it’s time we more cautious about who we blindly trust and empower going forward.

I think it is time for the A share structure to be dissolved.

Will never happen – it allows a select few to control the group which is funded by shareholders.
Following similar logic than Wiese has(d) – shareholders are necessary irritants.
Much like ANC and taxpayers – – they are there to fund the mistakes.

End of comments.

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