Going Dutch on Naspers

The 26th floor of the head office of Africa's biggest company is known as the "Nasdak" - a clever combination of "Naspers" and the Afrikaans word for roof, pronounced almost exactly like "Nasdaq", the stock exchange in New York known for its tech stocks.

At Naspers, this floor is a function venue boasting spectacular views of Table Mountain and Cape Town's harbour. A place where executives might be able to gaze out at the natural attractions and into the future beyond.

The name was suggested by one of the hundreds of journalists who worked for SA's largest newspaper publisher in the early 2000s. Whether it was pure coincidence or revealed a deeper ambition, it foreshadowed Naspers's transformation from a print and pay-TV business into a consumer-facing technology giant. The kind of company that could be a big player on the Nasdaq.

Winged stallion

But this week, when the company shared its plans to hive off a part of its assets, it named not the Nasdaq but Amsterdam's Euronext exchange as its bourse of choice.

"Amsterdam has been our second home since the 1990s," CEO Bob van Dijk told Business Times after the announcement that Naspers would list an entity containing its international internet and e-commerce businesses.

Van Dijk, a native of the Netherlands, said the Dutch capital would give the businesses listed there access to a deeper pool of capital and could be a big selling point in attracting the skilled employees of the calibre a growing consumer-facing tech empire needs.

Naspers will retain a 75% stake in the entity for now called NewCo and will float the rest in Amsterdam. NewCo will have a secondary listing on the JSE. Importantly, the 31% stake Naspers holds in Tencent will be housed in NewCo.

Former chair Ton Vosloo, in a recent autobiography, called Tencent the "big, winged stallion in Naspers's stable".

The Cape Town-based company's shrewd early investment in the Chinese internet behemoth has created fabulous wealth for executives through share options, foremost for current chair Koos Bekker, a former CEO.

South African asset managers and pension funds - and ultimately regular Joes who save for their retirement - have also benefitted handsomely for more than a decade.

'The discount'

But it has meant that some of the other animals in the stable were treated as donkeys.

The market ascribes a negative value to all Naspers's other assets. South Africans know the magazines, newspapers and publishers of Media24, and plenty of consumers have boxes of online goodies delivered by Takealot. Over the past decade, Naspers also ploughed billions into e-commerce businesses such as e-classifieds site OLX, India's Flipkart and US-based letgo.

These investments have value, but because of Tencent's long shadow this is not reflected in the share price.

Those who follow Naspers commonly refer to "the discount". Naspers is worth $100bn (R1.4-trillion), but a 31% stake in Tencent is worth more than $130bn. The difference is called the discount.

Other factors, which Van Dijk calls "structural", have also taken their toll.

To put it in its simplest terms, Naspers, in its current form, outgrew the JSE.

In SA, after years of eye-watering growth, it now represents almost a quarter of the bourse's benchmark Swix index for institutional investors.

Being a big fish in a smallish pond means a lot of splashing. And asset managers, pension funds and other investors who hold the company's shares have for the past few years been obliged to sell Naspers as it grew beyond most institutional investors' single stock limits.

"We believe it is one of the key factors in driving up the discount. If you go back five years, we were 5% of the index, now we are almost 25%, and that has left you with a very significant readjustment," said Van Dijk.

"As that happened, domestic institutional investors had to sell and they had to sell in very large volumes."

And the company's structure - as investors have been complaining for years - needed to be rejigged.

That is why the international assets will be listed in Amsterdam. Naspers floated several options to investors, and decided on this model after 18 months of planning, said Van Dijk.

As far as the pressure on Naspers's share price due to disposals by South African institutional investors is concerned, the new structure might go some way towards alleviating the problem, said Old Mutual Equities analyst Philip Short.

"By listing on the Euronext, the company will remove forced selling and create new buying from both active and passive investors," he said.

NewCo is expected to slot in as the largest consumer-facing technology company on the Euronext and could be third largest on the bourse overall, according to Van Dijk.

This will ensure the company is included in some blue-chip indices Naspers did not qualify for and will pull in billions of euros from passive investors. It will also suddenly be a blip on the radar of institutional investors who were either unaware of Naspers or not allowed to buy its shares due to perceptions of political and currency risk in SA.

More buying on one side and less selling on the other could help narrow the discount, Van Dijk hopes.

JSE CEO Nicky Newton-King called the move a "very elegant solution" to Naspers's problem.

Holdco on top of a holdco

But the investment in Tencent will still be bundled with businesses at different levels of maturity. And with Naspers holding NewCo and NewCo holding the stakes in these businesses, the whole scheme now has another layer of management - the sort of thing that contributes to a discount in the share price of the holding company compared to the value of the underlying assets.

Detractors call it a holdco on top of a holdco. The winged stallion that is Tencent will likely still be the thoroughbred.

"Most investors would have wanted the
e-commerce assets to be listed separately, which would have made it clearer what the value is of those businesses," said Investec Asset Management portfolio manager Hannes van den Berg.

MultiChoice, the African pay-TV business that has its roots in M-Net - founded by Bekker in the mid-'80s - was unbundled to Naspers shareholders last month. It was difficult to value inside the sprawling group, but MultiChoice now has a market capitalisation of R40bn on the JSE.

If selling down its Tencent stake by 2% to 31% last year was the first step by Naspers, letting go of MultiChoice was the second.

'Larger process'

"I think the Amsterdam listing is one step in a larger, long-term process," said Van den Berg.

Van Dijk expects the NewCo listing on the Euronext to be a very attractive vehicle for the global tech investor.

And by choosing Amsterdam, Naspers could be signalling that future listings of e-commerce businesses could happen on the Euronext bourse. Some of them, such as Germany's Delivery Hero, are already in the neighbourhood.

But, most important, Van Dijk revealed why Amsterdam was such a logical fit. The Euronext's governance regime allows the same control structures that Naspers needs to reassure Chinese authorities - who view Tencent's business as of strategic importance - that it cannot be the target of a hostile takeover bid.

Amsterdam allows Naspers's control to remain squarely in the hands of Bekker and friends, who together hold enough high-voting A-class shares to call the shots.

And those shots will be called from Cape Town, not too far from the Nasdak.