Dutch e-commerce investor Prosus NV and its controlling shareholder Naspers Ltd. shares gained after winning approval from South African regulators to unwind their complex ownership structure.
(Bloomberg) — Dutch e-commerce investor Prosus NV and its controlling shareholder Naspers Ltd. shares gained after winning approval from South African regulators to unwind their complex ownership structure.
In an unusual arrangement, for nearly two years Amsterdam-based Prosus has owned nearly half of its Cape Town-headquartered parent company Naspers. The South African Reserve Bank has now green-lit a transaction that will allow Naspers to buy back more of its shares and work to undo that structure, the companies said in a statement.
At the heart of the so-called cross-holding is the fact that Naspers owns more than a quarter of the Chinese Internet giant Tencent Holdings Ltd., whose market capitalization skyrocketed to nearly $1 trillion in early 2021. This massive stake pushed Naspers’ weighting on the Johannesburg Stock Exchange to 23%, causing problems for local fund managers who faced caps on trading it.
In response, management arranged for Prosus to own a chunk of its parent in order to transfer some of its economic interest to the larger Dutch market. Since then, Naspers’s size relative to the South African bourse has dropped, as has Tencent’s market value. Meanwhile, Prosus has been cutting its stake in Tencent, and the proceeds have been used to fund share buybacks for it and its parent.
“Removing the cross-holding now does not unwind the benefits of what we did in 2021,” Prosus Chief Financial Officer Basil Sgourdos said in an interview.
Naspers shares were up 8.1% in Johannesburg, while Prosus rose 5.2% in Amsterdam. Tencent shares gained 2.6%.
What Bloomberg Intelligence Says:
Naspers and Prosus’ decision to unwind the unnecessarily complex and ineffective cross-shareholding is welcome, but only reverses a bad move the same management made in 2021. The new structure will still look very much like a holding company for the Tencent stake, with a relatively small set of other investments on the side. A more aggressive move to distribute this stake looks unlikely given current management.
— John Davies, BI telecom and media analyst
The regulator’s permissions will allow Prosus to be diluted out of its shareholding of Naspers, while Naspers will retain control over Prosus and a 43% direct economic interest in the company, Prosus Chief Executive Officer Bob van Dijk said in an interview.
“The open-ended buyback created about $30 billion in value” to date, Van Dijk said in an interview. “However, we were going to run into limitations, and by removing the cross-holding we will be able to continue with the program.”
Naspers split off Prosus in 2019 to manage the Cape Town-based company’s tech holdings and the Tencent stake. When the cross-holding between the two businesses was introduced, it resulted in Prosus owning 49.95% of its parent company.
However, that move caused confusion among investors. Management is seeking to reduce the discount between Naspers’s and Prosus’s overall value and the value of the group’s 26% stake in Tencent.
The agreement, which is subject to shareholder approval, is expected to be implemented in the third quarter.
–With assistance from Thyagaraju Adinarayan and Henry Ren.
(Updates with context throughout.)
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