Prosus Launches $5 Billion Buyback in Bid to Close Tencent Value Gap -- Update
By Alexandra Wexler
JOHANNESBURG -- Internet conglomerate Prosus NV said Friday it
plans to buy back up to $5 billion of its own shares and those of
its parent Naspers Ltd., after losing out on two high-profile
acquisitions. It is the latest attempt to narrow a persistent gap
between the company's market value and that of its stake in China's
Tencent Holdings Ltd.
Naspers, a South African newspaper publisher turned technology
giant and Africa's most valuable listed company, has long been
struggling to bring its own market capitalization closer to that of
its stake in Chinese internet and gaming colossus Tencent. Last
year, it created Amsterdam-listed Prosus to hold its international
assets -- the 31% stake in Tencent, along with investments in tech
companies such as Russian social-media operator Mail.ru Group Ltd.
and U.S. online marketplace Letgo.
The move initially narrowed the gap, but more recently the
valuation differences have grown again. Johannesburg-listed
Naspers, which owns 72.5% of Prosus, has a current market
capitalization of 1.39 trillion South African rand (equivalent to
$85.11 billion), while Prosus has a market capitalization of 137
billion euros ($160 billion). The value of Prosus's 31% stake in
Tencent, meanwhile, is about $226 billion.
Analysts have attributed this persistent gulf to a
dividend-withholding tax that Naspers would need to pay should it
sell its stake in Tencent and distribute the proceeds to investors.
Another reason for the difference is lack of liquidity: Investors
can also gain direct access to Tencent shares through its Hong Kong
listing. Tech and internet stocks have also been on a tear this
year, because of pandemic-fueled demand, further boosting the share
prices of companies like Tencent.
Naspers said Friday that the buyback plan -- which includes
purchases of up to $1.37 billion in Prosus shares and to $3.63
billion in Naspers shares -- was a vote of confidence in its assets
and would help its investors capitalize on the discount.
Prosus shares in Amsterdam were trading 4.2% higher at EUR86.70
(equivalent to $101.16) a share on Friday morning. Naspers shares
in Johannesburg were up 4.8% at 3,187.32 South African rand
($195.17) a share.
But analysts said there was a reason that Prosus has lots of
spare cash to spend on its own shares: Its failure to find fresh
investments. In July, Prosus lost out to Norway's Adevinta AS in a
bidding war for eBay Inc.'s classified-ads business. And earlier
this year, U.K. food delivery business Just Eat PLC snubbed a
GBP4.9 billion (equivalent to $6.35 billion) offer from Prosus and
instead merged with Dutch rival Takeaway.com NV.
"The businesses that they know best are the one place they're
finding value at the moment," said Kevin Mattison, managing
director at Avior Capital Markets in Cape Town, South Africa. "It's
going to be harder for them to find large transactions at
valuations that they deem attractive... given the rapid rise of
internet share valuations this year."
Founded in South Africa in 1915, Naspers was originally De
Nationale Pers Beperkt, or the National Press Ltd., which produced
a Dutch-language newspaper for the country's Afrikaner population.
In the 1980s, the company began expanding beyond its publishing
roots, including into video entertainment.
Naspers paid $34 million for its original Tencent stake in 2001,
and Tencent is now one of the world's most valuable companies. Much
of Naspers' growth in recent years can be attributed to the rise in
value of its stake in Tencent, best known in China for its WeChat
Prosus also has holdings in German food-delivery business
Delivery Hero, Honor, an online network of U.S. home-care agencies
for the elderly, and BYJU's, an educational technology company and
creator of a popular childhood learning app in India.
Adria Calatayud in Barcelona contributed to this article.
Write to Alexandra Wexler at email@example.com
(END) Dow Jones Newswires
October 30, 2020 08:41 ET (12:41 GMT)
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