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Naspers CEO accused of destroying R600bn in value

Investment advisor writes an open letter to the CEO.

Albert Saporta a director of Geneva-based investment advisory firm AIM&R on Thursday accused Naspers CEO Bob Van Dijk of destroying a total of R600 billion value since taking the helm in April 2014.

The allegations are contained in the second open letter Saporta has sent to Van Dijk in which he responds to Van Dijk’s statements at an Investor Day in New York the day before. Van Dijk said that Naspers will consider “structural options” if the value gap with its stake in Tencent Holdings persists.

In response to the latest letter, Naspers head of investor relations Meloy Horn said: “At the recent Investor Day in New York, Naspers management covered the views on and efforts to narrow the discount extensively and we refer to those materials. It is unfortunate that given his views Mr Saporta did not attend the day and take advantage of the opportunity to engage with management on the matter or make any other attempts to engage with us directly. We would be more than happy to have a conversation with Mr Saporta should he want to engage with us directly.”

Read: Naspers: No imminent solution to the discount problem

Naspers’s 33% stake in Chinese internet giant Tencent is valued at $158 billion, compared to the market value of Naspers as a whole at $112 billion, Bloomberg recently reported.

Moneyweb published Saporta’s first open letter to Van Dijk in June this year. He then wrote to Van Dijk: “Since your appointment to the helm of Naspers, the value of the Tencent stake relative to Naspers’ market capitalisation has grown from 90% to 130% today and seems to accelerate. Correspondingly, as implied by the market, the value of Naspers’ dozens of other investments and businesses has declined from a value of R34 billion to negative R300 billion. This can be simply calculated by subtracting the value of the Tencent stake from Naspers’ market capitalisation. In other words, in the last three years, R334 billion of shareholder value has been destroyed.”

He questioned the fact that Van Dijk’s remuneration is based on the appreciation of the share price, which is driven by Tencent. Van Dijk is however not responsible and has no influence over the performance of Tencent. Saporta called for the unbundling of Tencent.

In the latest letter, Saporta says since his previous letter Van Dijk presided over a further R300 billion value destruction – totalling R600 billion since his appointment in April 2014.

Saporta says: “You finally recognised that the size of the discount was too big and that there may be structural reasons for that.”

He reiterates his recommendations made in his previous letter, “which had they been implemented at the time would have saved shareholders at the very least R300 billion, and more.”

These recommendations are:

  1. Align Van Dijk’s compensation with the implicit value of Naspers’ non-listed ex-Tencent businesses;
  2. Spin-off the Tencent stake to Naspers shareholders;

Absent of a Tencent spin-off, Saporta proposes:

  1. Declare clearly what level of discount is unacceptable and buy back shares when it exceeds that level. “I believe anything above 20% is a disgrace to shareholders.”
  2. Sell some Tencent shares and use the proceeds for the proposed buy-back. “The stake has become just too big.”
  3. Consider the sale of Tencent shares by issuing a convertible bond, convertible into Tencent shares, and using the proceeds to buy back shares or for investing.
  4. Pointing towards the example of Altaba that created value of $5 billion from an equally large discount, Saporta proposes the spin-out of the entire investment portfolio to investors in a new company, with enough cash to sustain an investment strategy over the next two to three years. “Hence Naspers will become a pure Tencent tracker. The discount on this will probably settle in the 10% to 20% range, (possibly lower), and shareholders will also own a “Naspers VC” company which owns all your other investments, present and future.” The market will be able to value this a lot more efficiently than currently, he says. Saporta does not support “any piecemeal IPOs of your various participations”, which he says will not solve the discount problem. He says those businesses are just too small compared to Tencent, and putting a market price on it will not change anything.

Saporta says contrary to market reaction (which erased R100 million of value after the New York meeting), “I am encouraged by the new ‘body language”.

The Naspers share price has dropped from R3 624 on Monday to R3 432.65 on Thursday afternoon.

Read Saporta’s full letter here.

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The highly skilled Geneva-based, Albert Saporta, knows what he is talking about and his proposals are both sensible and executable. The board of Naspers should stop giving him the run-about and attend to this matter seriously if they wish to prevent a case of derelict of duty and responsibility and a damages claim against themselves in their personal capacities. It’s a no-brainer.

Yep agree. No brainer, but arrogant “Koos se so” then that means :”Koos se so” and nothing else.

I agree.
But I doubt Van Dijk or Bekker will do anything – they would rather face shareholder action than to be seen to cow-tow to Investment Advisor.
And do not forget, their salaries / packages are at risk if they accept the advice – soon shareholders will see they add very little value to the group.

I cannot believe that there are so many people in South Africa (presumably of the old school Afrikaner type) that blindly invest in Naspers.

It is astounding that people are so blind to Naspers being the next Steinhoff.

The solution is a no brainer, you are correct. Unbundle Tencent, period! Everyone benefits financially, immediatly, and the discount is eradicated.

Why is the pressure comming from an ofshore manager and not from managers of our assets here in South Africa? Are they scared of Koos? I think this is the way they more than make up for their losses in Steinhoff. South African asset managers need to be more assertive with the captains of industry here in South Africa!

Thank you Albert for pointing out the obvious!

So why would Naspers not do this? Or more importantly why wont Koos entertain this? Surely his wealth would go up significantly if he does this? Perhaps this is more about ego as he already has more wealth than he will ever be able to spend in his lifetime.

Why must a Geneva based manager do this? Why can South African fund managers not do this? All the big names hold Naspers-not one gets off their overpaid under-performing rumps and DOES anything except charge fees.

South African fund managers are a lazy, inept crowd who are as responsible for the Steinhoff losses as the board of that wretched company

Regso, Koos does know!

Doos us a favour, please explain how R 600 billion in value can/was destroyed!

He can’t because he doesn’t know – he does not read Moneywebb.

Ask me, I know not – just read the article, it is clearly spelled out.

Koos and van Dyk OWN naspers shares – NOT tencent shares. Removing tencent from the equation will not see the upward price movement in naspers hence Koos and Van Dyk will NOT see they shares rocket but plummet.

They don’t care about value destruction coz following Saporta’s advice will leave them short changed – to say the least.

I agree with France – SUE the bastards.

Show me a CEO who really bats for shareholders – unless they own their companies like Bezos and Jack Ma and other tech CEO’s.

Most CEO’s are there for the Big Bucks and perks.

Why should Saporta have to have to ask any further questions in a private conversation with Naspers? The comments he made are valid and in the public interest, so why the prevarication. Perhaps the reasons won’t stand up to scrutiny. As a public company Naspers should be open and transparent in dealing with legitimate questions. Secrecy and obfuscation has been Steinhoff’s and its shareholders’ downfall so we don’t need any further surprises!

It is astounding to see how many purportedly professional investors don’t know the difference between price and value… the fact that the share price of Naspers is not tracking that of Tencent is not value-destructive in itself… and certainly not the “fault” of Naspers management.

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