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Corporates obsessed with control …

How will things play out for Prosus, Naspers, Tencent, Zeder and PSG? Plus a word or two on Steinhoff’s ‘guarantee’ and the EOH situation.
An upside for Naspers/Prosus: Tencent seems determined to assure its government that it is keen to assist with any state-building projects it might have in mind. Image: Qilai Shen/Bloomberg

Well, it wasn’t much of a surprise that Prosus secured the necessary shareholder support to proceed with the share exchange offer to shareholders of its parent, Naspers.

Control of the company is so securely tied up in the hands of the extremely high-voting Naspers A shareholders that there was never a risk it wouldn’t get the necessary approval.

Read: Prosus shareholders approve Naspers share purchase

The popularity of the deal will be better tested when it comes to persuading enough Naspers shareholders to exchange their shares for Prosus shares.

Meanwhile, aren’t you sick to death of hearing about Prosus management’s determination to reduce the discount and create value for shareholders?

They could achieve that extra value almost instantaneously in one bold move by extricating themselves from the Naspers/Tencent relationship.

It’s truly appalling how much of the hefty Tencent dividend is soaked up in executive and head-office expenses.

Of course in the long term it may just be that these executives will be successful, or lucky, and build up something of value for Naspers/Prosus shareholders in the event that things go pear-shaped with Tencent.

Tencent tension

The Tencent share price is significantly off its recent high – reached in February this year – but it’s holding up considerably better than could be expected, given China’s President Xi Jinping’s flare for the dramatic.

By all accounts Tencent CEO Pony Ma is a remarkable and self-effacing character and not prone to the same sort of aggrandisement that has characterised other Chinese tech billionaires. What did Alibaba’s Jack Ma think he was doing, biting the hand that fed him so generously for so many years?

The latest to fall foul of Xi’s tightening grip on Chinese society is Didi Global CEO Cheng Wei. He decided to go ahead with a US listing just days after Beijing indicated that it mightn’t be a good idea.

Didi’s ride-hailing business is almost entirely China-based and as such its survival is down to the goodwill of the Chinese government. And how did its fee-grabbing US promoters not reckon that Beijing would hit back if Didi didn’t play ball?

Now the variable interest entity (VIE) structure that underpins so much of the value of Chinese businesses, such as Tencent, is under scrutiny.

The VIE structure has enabled foreign investors to sidestep restrictions on foreign ownership of ‘strategic’ Chinese operations. At the drop of a hat, Xi could upend the whole system. The good news for Naspers/Prosus shareholders is that Tencent management seems determined to assure its government that it is keen to assist with any state-building projects it might have in mind.

Meanwhile the byzantine structure that secures control of publicly-listed Naspers in the hands of a relatively few Afrikaners is probably just the sort of entity that would appeal to the control-obsessed Xi.

Zeder deaf to shareholders?

Another management team that seems determined to ignore the wishes of its shareholders is Zeder.

Two years ago when Zeder, which is an offshoot of PSG, sold off its major assets – Pioneer Foods and Quantum – it indicated to shareholders that it might soon delist. That seemed reasonable given that it really doesn’t have enough in the way of businesses to warrant its own expensive management team, even if it is led by an acting CEO.

That promise looks to be the main thing holding up the share price.

At every results announcement and trading update the board reminds shareholders it continues to consider “approaches” from third parties interested in acquiring a number of its investments.

It blames Covid-19 for the delay in making any decision. Well, why not? Someone may as well get some benefit out of Covid.

PSG

Meanwhile, at PSG’s AGM last week shareholders were a little more supportive of the group’s remuneration policy than they have been in recent years.

But a large chunk of them still seem to have problems with very long-serving director Chris Otto. Just over 38% of them voted against Otto’s reappointment as a member of the audit and risk committee.

However, as any Stellenbosch resident will tell you, it’ll take more than the ill-will of minority shareholders to prise Otto out of this well-paying position.

Steinhoff’s ‘guarantee’

On a different note, Judge Lee Bozalek’s recent ruling on the validity of Steinhoff’s 2019 ‘guarantee’ for a $465 million bond contains all sorts of fascinating details; such as the fact that PwC was brought in to give its stamp of approval for the original guarantee that was provided for that same bond back in 2014.

Two legal firms were also employed to interrogate the appropriateness of the guarantee.

A solvency and liquidity test is needed before a board is allowed to provide such a guarantee. As we all now know, back in 2014 Steinhoff was in no state to pass such a test. However all three of these fee-earners gave their approval.

You have to wonder what is the point of all these expensive expert testimonies if all they do is rubber-stamp the hugely-flawed information that is handed to them by management.

EOH

On a final note, it would be difficult to imagine a company less deserving of being blacklisted by government than EOH. Not that EOH wasn’t involved in corrupt deals at various government departments under its previous leadership, but the new team seems to have done everything possible to rectify the situation.

Read: EOH confident it won’t be blacklisted by government

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COMMENTS   1

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Love your work Ann, nice wrap to a tough week.

Control really is an illusion, and obsession always leads to the same thing-delinquent behaviour.

Delinquency eventually hurts everyone, but first it hurts the self.

Thanks for keeping us honed in. Great work!

End of comments.

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