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Prosus to buy up to R82bn in its own, Naspers shares

As part of efforts to narrow a discount between its share price and underlying assets.
Image: Jasper Juinen/Bloomberg

Prosus said on Friday it would purchase up to R82 billion in its own and parent Naspers shares, as part of efforts to narrow a discount between its share price and underlying assets.

Prosus said it would buy-back up to $1.37 billion of its own stock and up to $3.63 billion of Naspers shares in a proposed transaction it expected to launch following the release of its interim results on November 23.

Read: Naspers’s insurance plan – Prosus

“Today’s announcement marks another step in Prosus’s continuing creation of shareholder value and reflects its focus on reducing the current discount of the share price to Prosus’s net asset value over time,” it said in a statement.

Naspers has long been trying to close a discount between its stock price and that of its underlying assets, including an around 30% stake in Chinese internet giant Tencent Holdings . It listed Prosus, which houses that stake and other internet assets, separately in Amsterdam as part of those efforts last year.

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This is a great move by Naspers, which should be commended. It is essentially buying access to Tencent’s earnings at around 20x earnings rather than the 40x if it bought Tencent directly, while signaling to the market that the discount is relevant to their thinking.

Could also be directors looking out for themselves.

This is what shareholders have been asking for. To the extent they have stock they will benefit but that is fair enough and exactly what you would want – alignment with shareholders.

how about rather creating value in the rest of the business – the parts other than TenCent, or otherwise known as the only parts of the business that these managers actually have any say over.

Buying back shares is a corporate finance move and will not change the negative valuation on the rest of the business.

When Microsoft was stupid and bought Nokia for $20b, or same with FB and WhatsApp, the board turned around and said sorry, that was dumb, and wrote off those assets entirely because that was what they were worth. Trying to get the market to like the other than TenCent stuff as much as Naspers management does is futile.

I agree that while the stake in Tencent is such a large part of the value of Naspers that it will always be the focus of the market, making it less relevant (and to some investors irrelevant) what they do in the rest of the business. I think eventually this realization will dawn on management. But until it does the best shareholders can hope for is buybacks when the discount is ridiculously large which gives it s floor valuation. If Naspers borrows to buyback its own stock – which it has to do if it doesn’t want to sell Tencent stock, eventually it will be a leveraged play on Tencent (with that risk and reward profile). Like an ETF with for example 2x exposure to the underlying. Still this, together with perhaps implied guaranteed buybacks at a certain discount is better than the current situation and might actually be welcomed by investors who want a geared exposure to Tencent.

Given the co does not seem inclined to dispose of the Tencent stake maybe the eventual compromise solution of management will be to buyback stocks at for example a 50% discount and sell some Tencent to prevent gearing going up beyond a certain level. That combo might result in the discount going to 25%. That would be acceptable to most investors.

End of comments.

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