Naspers CEO accused of destroying R600bn in value

Albert Saporta a director of Geneva-based investment advisory firm AIM&R on Thursday accused Naspers CEO Bob Van Dijk of destroying a total of R600 billion value since taking the helm in April 2014.

The allegations are contained in the second open letter Saporta has sent to Van Dijk in which he responds to Van Dijk’s statements at an Investor Day in New York the day before. Van Dijk said that Naspers will consider “structural options” if the value gap with its stake in Tencent Holdings persists.

In response to the latest letter, Naspers head of investor relations Meloy Horn said: “At the recent Investor Day in New York, Naspers management covered the views on and efforts to narrow the discount extensively and we refer to those materials. It is unfortunate that given his views Mr Saporta did not attend the day and take advantage of the opportunity to engage with management on the matter or make any other attempts to engage with us directly. We would be more than happy to have a conversation with Mr Saporta should he want to engage with us directly.”

Naspers’s 33% stake in Chinese internet giant Tencent is valued at $158 billion, compared to the market value of Naspers as a whole at $112 billion, Bloomberg recently reported.

Moneyweb published Saporta’s first open letter to Van Dijk in June this year. He then wrote to Van Dijk: “Since your appointment to the helm of Naspers, the value of the Tencent stake relative to Naspers’ market capitalisation has grown from 90% to 130% today and seems to accelerate. Correspondingly, as implied by the market, the value of Naspers’ dozens of other investments and businesses has declined from a value of R34 billion to negative R300 billion. This can be simply calculated by subtracting the value of the Tencent stake from Naspers’ market capitalisation. In other words, in the last three years, R334 billion of shareholder value has been destroyed.”

He questioned the fact that Van Dijk’s remuneration is based on the appreciation of the share price, which is driven by Tencent. Van Dijk is however not responsible and has no influence over the performance of Tencent. Saporta called for the unbundling of Tencent.

In the latest letter, Saporta says since his previous letter Van Dijk presided over a further R300 billion value destruction – totalling R600 billion since his appointment in April 2014.

Saporta says: “You finally recognised that the size of the discount was too big and that there may be structural reasons for that.”

He reiterates his recommendations made in his previous letter, “which had they been implemented at the time would have saved shareholders at the very least R300 billion, and more.”

These recommendations are:

1. Align Van Dijk’s compensation with the implicit value of Naspers’ non-listed ex-Tencent businesses;
2. Spin-off the Tencent stake to Naspers shareholders;

Absent of a Tencent spin-off, Saporta proposes:

1. Declare clearly what level of discount is unacceptable and buy back shares when it exceeds that level. “I believe anything above 20% is a disgrace to shareholders.”
2. Sell some Tencent shares and use the proceeds for the proposed buy-back. “The stake has become just too big.”
3. Consider the sale of Tencent shares by issuing a convertible bond, convertible into Tencent shares, and using the proceeds to buy back shares or for investing.
4. Pointing towards the example of Altaba that created value of $5 billion from an equally large discount, Saporta proposes the spin-out of the entire investment portfolio to investors in a new company, with enough cash to sustain an investment strategy over the next two to three years. “Hence Naspers will become a pure Tencent tracker. The discount on this will probably settle in the 10% to 20% range, (possibly lower), and shareholders will also own a “Naspers VC” company which owns all your other investments, present and future.” The market will be able to value this a lot more efficiently than currently, he says. Saporta does not support “any piecemeal IPOs of your various participations”, which he says will not solve the discount problem. He says those businesses are just too small compared to Tencent, and putting a market price on it will not change anything.

Saporta says contrary to market reaction (which erased R100 million of value after the New York meeting), “I am encouraged by the new ‘body language”.

The Naspers share price has dropped from R3 624 on Monday to R3 432.65 on Thursday afternoon.

Read Saporta’s full letter here.

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