Prosus has cleared another hurdle – albeit a relatively low one – in its plan to implement the restructuring of the Naspers and Prosus company structure by way of an offer to Naspers shareholders to swap their holdings for new Prosus shares.
While some Naspers shareholders voiced their unhappiness with the transaction, it was obvious that the necessary resolutions to implement the scheme would be ratified at the Prosus extraordinary general meeting (EGM) held on Friday (July 9).
The boards of directors and executive management teams of both Prosus and Naspers supported the transaction, with Naspers indicating before the meeting that it is allowed to and would vote the 73% Prosus shares that owns.
Thus, the majority of the votes were in the bag before Prosus sent out the notice of the EGM.
‘Passed and adopted’
Prosus announced on Friday afternoon that “shareholders are advised that the resolution relating to the voluntary share exchange offer as set out in the notice of the EGM was passed and adopted by the requisite majority of shareholders represented at the meeting”.
Prosus noted that nearly 93% of the total issued shares were represented at the meeting, meaning that investors holding nearly 1.5 billion shares could vote on the proposal.
That not all shareholders bothered to vote or appoint a proxy to vote on their behalf meant that Naspers’s 73% shareholding carried a weight of nearly 79% in the final tally.
Analysis of voting
|Total issued shares||1 616 289 395|
|Represented at EGM||1 499 770 314|
|Naspers voting in favour||1 180 250 012||78.7%|
|Other voting in favour||170 466 552||11.4%|
|Against||146 977 968||9.8%|
|Abstain||2 075 782||0.1%|
|Total||1 499 770 314||100%|
Source: Based on figures in formal announcement
Of interest is that more than 90% of shareholders that opted to vote were in favour of the restructuring, despite the lingering doubts that the more complex structure would not narrow the big discount between the Prosus and Naspers share prices to the underlying value of their investments, represented by the huge Tencent.
Management noted in its analysis of the voting results that when excluding the Naspers shares, shareholders representing more than 53% of Prosus voted in favour of the proposed transaction.
This means that Prosus shareholders, at least, are for the proposed share swap.
Good deal for Prosus
In itself, the share swap is a good deal for Prosus shareholders. Although the swap ratio offers Naspers shareholders value, Prosus is also using its already undervalued shares to acquire Naspers shares at a slight discount.
While the directors and management of Prosus thanked shareholders for their engagement on and support for the transaction, they also gave an undertaking that management would continue to focus on additional actions that can improve shareholder returns.
Formal approval from Naspers shareholders is not necessary as the offer to swap their Naspers holdings for new Prosus shares is voluntary.
After the meeting, Bob van Dijk, CEO of both Prosus and Naspers, said that following shareholder approval at the EGM, Prosus will formally offer Naspers shareholders a voluntary share exchange.
“This enables those who wish to do so to tender some Naspers shares for Prosus shares,” he said.
“We believe that the transaction is a critical step in creating a capital structure expected to unlock value for both Prosus and Naspers shareholders.”
Discount to NAV
Unlocking value is still the burning issue. Not surprisingly, most of the questions management had to answer at the meeting – and over the last few years – were about the shares’ discount to net asset value (NAV).
Prosus asked shareholders to submit questions ahead of the meeting to facilitate proceedings, with one of the first to voice shareholders’ concerns that the deal is introducing more complexity and that the new cross-holding structure might further increase the discount over the longer term.
“Although the problem we are trying to solve is quite complex, the structure of the company after the proposed transaction will be straightforward,” says management.
“The Prosus free float will own approximately 60% of the underlying NAV and Prosus on the AEX [index, derived from the Amsterdam Exchange index] will play the most significant role on how the assets are priced. This is important as the AEX does not have the same size challenges of the JSE in South Africa. This is positive for both Prosus and Naspers shareholders,” adds management.
On what actions management will pursue in future to address the issue, Van Dijk reassured shareholders the board will consider other actions that may be possible to improve returns and to address the discounts at Prosus and Naspers.
“The board cannot speculate on what may or may not be done in future, and the proposed transaction maintains flexibility,” according to management.
“The board expects that continued improvements in the group’s operations and disciplined capital allocation that drive future growth at the good returns we have delivered so far, will create significant value for shareholders in the future.”
Van Dijk reiterated that Tencent is core to the group’s strategy, providing the group with excellent exposure to the world’s largest internet market.
“Shareholders have benefitted hugely as a result of the group’s investment in Tencent and the board believes Tencent has tremendous potential for growth,” says Van Dijk.
Now it’s up to Naspers shareholders
The next step is in the hands of Naspers shareholders, who must decide whether to swap their Naspers shares for Prosus shares.
The deal will only proceed if Prosus gets enough shareholders to tender their shares to ensure that Prosus ends up with 49% of Naspers.
This looks possible too, under the assumption that there is a lot of overlap between Naspers and Prosus shareholders.
The fact that around 53% of the minority shareholders in Prosus approved the deal indicates that Naspers shareholders will be willing to swap their JSE Naspers Ltd shares for Euronext Amsterdam Prosus NV shares.
It is basically individual investors who will decide if the transaction comes to fruition as Naspers does not have a single dominant shareholder.