Naspers Limited (NPN) and Prosus N.V (PRX) - Simplification of the cross-holding structure
Multimedia, technology, and e-commerce giants, Naspers and Prosus, received shareholder approval to remove the cross- holding structure between the two companies:
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This relates to Naspers' ~60.6% ownership of Prosus, and Prosus' subsequent ~49% stake in Naspers. This emanated from an attempt by management to reduce the discount between the two companies and their underlying assets.
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Efforts have been made to unwind the position; however, Naspers faces certain share quantity limitations (under the Companies Act of South Africa) with regard to the repurchase programme.
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Management has therefore resolved to eliminate the cross-holding structure to simplify the structure and to continue with share buybacks.
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The transaction will involve:
- Prosus issuing more shares (a capitalisation issue), to ultimately dilute the stake held by Naspers. Prosus shareholders will receive 1.16 new Prosus shares for every 1 Prosus share held.
- Naspers issuing more shares (a capitalisation issue), to ultimately dilute the stake held by Prosus, and this will be followed by a share consolidation to bring the total economic value of the companies back into balance.
- In the case of Naspers, only whole numbers of shares will be issued under the capitalisation issue and the share consolidation and there will be no fractional entitlements.
- In the case of Prosus, only whole shares will be issued under the capitalisation issue and, where fractional entitlements arise, issued shares will be rounded down to the nearest whole number, with shareholders compensated in cash for any share fractions.
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Post-implementation, Prosus' free-float shareholders will, in aggregate, directly hold 57% of the issued Prosus ordinary shares, and Naspers will directly hold 43% of the issued Prosus shares.
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Naspers will continue to trade under the share code NPN on the JSE, but its International Securities Identification Number will change after the transaction. This is not expected to have any impact on shareholders.
For the Naspers and Prosus capitalisation issues, the issue of the new shares will not constitute a dividend and thus no Dividend Tax is applicable. The capitalisation issue shares will have a nil cost and thus the full value of the shares may be subject to tax upon any future disposal. Cash payments for Prosus fractional entitlements will constitute a taxable event.
The Naspers share consolidation will not constitute a disposal and no tax event will ensue. The cost and date of acquisition of the pre-existing shares (including the shares obtained from the capitalisation issue) will be carried over to the new shares obtained from the share consolidation.
FNB Stockbroking and Portfolio Management View
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This is seen as a step in the right direction for both companies as it will improve transparency and visibility within both businesses. Naspers' direct shareholding will be more closely aligned with its economic interests in Prosus, and hence, Tencent. We expect no change to the Naspers share price while the share price of Prosus is expected to fall ~55% on 13 September with clients total financial exposure expected to remain steady. The correct number of shares will reflect in client broker accounts on 18 September 2023.
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We maintain our favourable view on Naspers, Prosus, and Tencent longer term.
