Naspers Plans Prosus Share Swap in New Effort to Boost Value

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Prosus NV is redoubling its effort to narrow the valuation gap between itself and a more than $200 billion-dollar stake in Tencent Holdings Ltd, unveiling a complex share swap and a further stock buyback.

The Dutch-listed unit’s parent Naspers Ltd. dominates the Johannesburg stock market, limiting the amount of its shares investors can own due to local fund ownership rules. That means its market value has long been less than its holding in Tencent.

Prosus will issue more stock, giving it a 49.5% stake in Naspers and increasing its free float to over $100 billion, the parent company said in a statement on Wednesday. By asking investors to swap Naspers stock with new Prosus shares, the deal will aim to attract a wider range of investors to its European listing and narrow the discount.

Prosus will also launch a further $5 billion share buyback once the share-swap deal is complete, Chief Financial Officer Basil Sgourdos said in an interview with Bloomberg. Prosus launched a previous $5 billion repurchase of its own stock and that of its South African parent last year.

Financial Flexibility

“The share offer we have announced today will extend Prosus’s standing as Europe’s largest internet company,” Chief Executive Officer Bob van Dijk said in a statement. The aim is to create “a stable construct that maintains the group’s operational, strategic and financial flexibility.”

Naspers shares rose as much as 5.5% in Johannesburg, while Prosus stock increased 3.6% in Amsterdam.

“Both shareholder parties should benefit from the transaction,” said Renier de Bruyn, an analyst at Sanlam Private Wealth. “Because Prosus trades at a lower discount to the Tencent stake than Naspers, the total discount in the system should come down,” he said.

Naspers has tried for years to achieve a valuation greater than the sum of its parts and stop being seen as merely a proxy for investing in WeChat-creator Tencent. Cape Town-based Naspers was an early-stage investor in Tencent and has gradually been eclipsed by the Chinese business’s soaring valuation.

Naspers Plans Prosus Share Swap in New Effort to Boost Value

Prosus was a major part of the plan to solve the valuation gap, created in 2019 to diversify away from South Africa and give investors more direct exposure to its broad portfolio of tech businesses. Naspers makes up almost a fifth of the country’s main stock exchange, even after spinning off most of its assets into Prosus.

The persistent discount means the market assigns a negative value to Prosus’s myriad other businesses, which span from Indian online travel agents to Brazilian food delivery and U.S. education sites.

“Investors and fund managers have a cap on how much they can own in Naspers,” said Sgourdos. “So every time the stock goes up they have to sell -- and that puts pressure on us -- and it makes the discount wider.”

Tencent Sale

In April, Prosus sold a $14.7 billion stake in Tencent, in the world’s second-biggest block trade on record, adding to a deals war chest after missing out out on two major acquisitions. Last year Takeaway.com NV trumped Prosus’s bid for Just Eat Plc, and EBay Inc.’s classifieds business was scooped up by Prosus’s smaller Norwegian rival, Adevinta ASA, for $9.2 billion.

“The plan is to grow the core business through M&A as well -- there is a lot in the pipeline,” said Sgourdos. “We have lots of financial flexibility to fund M&A, and also the buybacks. If there is more capital needed we have the capacity to raise that.”

The share-swap transaction is expected to be implemented during the third quarter of this year.

What Bloomberg Intelligence Says:

Prosus and Naspers’ plan to increase cross shareholdings may reduce the headwind of investors’ single-stock limits on the latter in particular, but increases the complexity and doesn’t address the elephant in the room: the discount to Tencent. Prosus trades at less than the value of its Tencent stake -- let alone its other investments -- which continues to imply that the market thinks that Prosus isn’t spending its Tencent gains effectively.

--John Davis, BI senior telecom, media and internet analyst

Click here to read the research.

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