It’s interesting that asset manager Ninety One has joined the chorus of those who have voiced their concerns about the proposed share swap between Naspers and Prosus, given that Ninety One CEO Hendrik du Toit is a non-executive director of both Naspers and Prosus.
Last week, Ninety One issued a note to its clients recommending that Prosus shareholders vote against the proposed transaction.
However, Ninety One made a point of mentioning in an e-mail to Moneyweb that Du Toit has specifically recused himself from any decisions around Naspers and does not attempt to influence or participate in any investment decisions on the stock given his position as an independent director of Naspers.
“Our investment managers analyse stocks and make decisions on what is appropriate and in the interest of our clients,” says a spokesperson for Ninety One.
“Since the announcement of the proposed transaction on 12th May 2021, the Ninety One investment team has engaged extensively with management to understand the transaction and come to a conclusion on what is best for our clients.
“In the process we voiced our concerns to management about several aspects of the transactions. Following our many interactions, we were heartened to see the Sens announcement from the company on 10th June 2021 which saw further commitment from executive directors with regards to the alignment of incentives.
“Despite this positive development, our concerns have not been fully alleviated, and we have sent a letter to our clients and to the Board of Directors of Naspers/Prosus.”
The note to Ninety One clients says that its analysts were heartened by the commitment that Naspers shares would remain a significant component of management remuneration.
“Ultimately, we have concerns around the ability of this deal to achieve our core objective; namely narrowing the discounts to net asset value in Naspers and Prosus over the long-term,” says the note.
The investment managers listed four concerns:
- The limited options Naspers will have to reduce its share price discount to net asset value (NAV) post the transaction;
- The risk of Naspers continuing to devalue relative to Prosus, which would disadvantage Naspers shareholders in any future transactions;
- The complexity required to implement the transaction and minimise tax leakage could result in a wider holding company discount over time; and
- The risk that management focus turns to Prosus, leaving Naspers orphaned.
Just under three weeks ago, 36 local fund managers took the unprecedented step of signing a letter directed at Naspers and Prosus management and directors urging them to reconsider.
It was noted that Ninety One, Coronation and Allan Gray were absent from the list, but they indicated that they were in contact with Naspers/Prosus directly.
Extraordinary general meeting
Only Prosus shareholders need to approve the proposal, in which Prosus is set to make an offer to Naspers shareholders of new Prosus shares in exchange for some their Naspers shares.
It is unnecessary for Naspers to get approval from their shareholders as the share swap is voluntary.
Prosus is calling an extraordinary general meeting (EGM) on July 9 for Prosus shareholders to vote on the proposed transaction and resolutions to enable the transaction.
A few resolutions are applicable to the transaction. The first is to approve the offer and the second is to amend Prosus’s Articles of Association to allow the creation of a new class of shares, Ordinary Shares B.
The new shares have one vote each, but very little in the way of economic rights.
In short, in terms of dividends, one million of the new B shares will receive the same dividend as one ordinary share.
If the B shares are to be converted to ordinary shares for any reason in the future, the conversion rate will be one million B shares per ordinary share.
The idea is to issue lots of the ‘worthless’ shares to Naspers to retain voting control over Prosus.
The notice of the EGM and circular to shareholders includes a cross-holding agreement between Naspers and Prosus setting out the principles of the new cross-holding structure. It includes rights and responsibilities with regards to dividends, precise shareholdings and limitations on selling shares.
Prosus confirmed that Naspers, as majority shareholder in Prosus, will be allowed to vote at the EGM.
This is an important issue, because sometimes majority shareholders are not allowed to vote on transactions and any restructuring that they designed themselves.
This is of particular interest in the case of Naspers and Prosus as their respective boards of directors are identical. Both companies have just two executive directors, CEO Bob van Dijk and CFO Basil Sgourdos, and 15 non-executive directors.
The interrelated relationship of the two companies can be seen in the fact that the cross-holding agreement was signed by Van Dijk on behalf of Naspers and Sgourdos on behalf of Prosus.
Management said in response to a question regarding voting at the EGM that a majority is required to carry the resolution and that Naspers will vote its shares in Prosus.
That Naspers owns more than 73% of Prosus means that all the proposals will be accepted.
“We are confident that this transaction is the most efficient and implementable transaction available to the company right now and that it will unlock value for all of our shareholders,” says Naspers/Prosus management.
“We are asking all Prosus shareholders for their support by voting in favour of the proposal.”
The circular to shareholders contains the usual warnings that shareholders should study the document carefully and get professional advice if necessary.
“If you are in any doubt as to what action you should take, please consult your broker, banker, legal adviser or other professional adviser immediately. You are advised to exercise caution in relation to your participation in the Proposed Transaction,” reads the front page of the circular.
“This Circular does not take into account the investment objectives, financial situation or needs of any particular person. Accordingly, before making any investment decision in relation to this Circular, each person should assess whether or not such decision is appropriate in light of his/her/its own financial circumstances or seek professional advice. Any Shareholder that is in doubt as to its position, including, without limitation, their tax status, should consult an appropriate professional adviser in his/her/its jurisdiction without delay,” it continues.
The professionals and advisors have spoken – loudly.
A lot of fund managers and big shareholders have raised their concerns about the transaction, but it looks like it is going ahead regardless.
Little can stop it now. The result of the EGM vote looks like a foregone conclusion – it will be available soon after the meeting on July 9.
The only way the transaction is not going to go ahead is if Prosus calls it off or if a regulator fails to approve an important aspect.
The only other thing that will kill it is if not enough Naspers shareholders accept the offer.
A condition is that Prosus must acquire 49% of the total issued Naspers N shares (including any already held by Prosus). This condition cannot be changed or waived, according to the circular.
However, Naspers shareholders can opt to swap all their shares for Prosus shares. The goal of a 49% shareholding applies to the overall outcome.
A lot of Naspers shareholders would probably take the swap, whether it is a good deal or not. Current sentiment in SA is to get your money abroad as quickly as possible, or buy rand hedge shares.
Prosus shares seem more international that Naspers and investors would be more interested in euro than in Beeld, You and Die Son.
Listen to Simon Brown’s interview with Anchor Capital’s Mike Gresty (or read the transcript here):