‘Stop the Naspers value destruction’

Albert Saporta, a director of Geneva-based investment advisory firm AIM&R has written an open letter to Naspers CEO Bob van Dijk accusing him of destroying R334 billion of shareholder value since his appointment more than three years ago.

Saporta says AIM&R is a shareholder in Naspers but would not disclose the size of its stake. The value destruction he refers to, is allegedly situated in Naspers’ investments and business excluding Tencent, and is apparent if its investment in Tencent is stripped out.

Saporta writes to Van Dijk: “Since your appointment at 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 calls for Tencent to be unbundled to Naspers shareholders.

Naspers head of investor relations Meloy Horn told Moneyweb that nobody at Naspers had received the letter. She said Naspers views Tencent as an appreciating asset and has no plans to sell or unbundle its stake.

Who is Saporta?

According to Bloomberg Saporta is the head of research at Makor Capital Ltd, Research Division. He was a founding partner at AIM&R with 28 years experience in global financial markets, with the last 21 years as a hedge fund manager. Saporta sold his research and hedge fund management businesses of AIM&R to ABN Amro in March 2006, Bloomberg states.

In his letter Saporta refers Van Dijk to a similar letter he addressed to the chairman and CEO of ASM International six years ago on the subject of value destruction. “My letter started a campaign which resulted in ASM International selling off most of its stake in ASM Pacific to the benefit of all shareholders,” Saporta wrote.

He told Moneyweb on Sunday that he will be lobbying other Naspers shareholders and hopes the letter can start a review process that will lead to a contraction of the discount at which Naspers is currently trading. 

CEO compensation

In his letter Saporta says it is “particularly unacceptable” that Van Dijk’s own compensation is based on a share option plan that rewards him for an increase in Naspers’ share price “for which you are absolutely not responsible”. Saporta alleges that part of Van Dijk’s remuneration is based on share appreciation rights for his portfolio companies. “However, this incentive may only have an impact when all of these various holdings are effectively monetised. Until then, the process of calculating the value of Naspers’ unlisted businesses is not fully transparent.”

Saporta argues that investors in Naspers are being doubly punished, firstly because a direct investment in Tencent would have earned them a 35% return, as opposed to the 24% Naspers delivered and secondly because the other Naspers businesses “are being implicitly and constantly devalued to the point of reaching a significant negative value”.

He illustrates the alleged value destruction with the following graph:

Saporta calls on Van Dijk to exercise his fiduciary duty to increase shareholder value and proposes a re-alignment of Van Dijk’s remuneration with the performance of the non-listed ex-Tencent business and total transparency on the internal value calculations for that business.

Inefficiency

He calls Naspers an “inefficient” entry point into Tencent. “Tencent’s value in Naspers has just become too large. Investment companies regularly sell at discounts to net asset values. However, in the case of Naspers, the problem is exacerbated by the fact that one trades in Johannesburg, while its overwhelming value trades in Hong Kong. Both represent widely different pools of investors.”

He proposes that Van Dijk consider the spin-off of Tencent to Naspers shareholders. “An investor buying R10 000-worth of Naspers at the beginning of 2015 would have R16 500 today. He would have R27 000 had he been invested directly in Tencent. By continuing to hold on to Tencent’s stake passively, you are not creating any added value for shareholders. To the contrary,” he argues and makes a detailed proposal how such a spin-off could be implemented.

Saporta calls for Naspers to become a more active investor after such unbundling and concludes: “The way the Naspers discount has been building up and how value is being implicitly destroyed at Naspers is unbearable. I call on you and the board to put a stop to this and clearly state as a company objective that you are seeking convergence between the net asset value and the market value of the company, as well as aligning your compensation with this goal.”

According to the Naspers 2016 Annual Integrated Report Van Dijk’s emoluments totalled $1.67 million for the period.

Naspers responds

Horn told Moneyweb that Naspers’ takes issue with Saporta’s “incorrect and myopic way of displaying the massive value creation for our shareholders.” She said there also seems to be some disconnect between his shorter-term expectations and the longer-term timeframe it takes to build successful platform business.

“A discount to our sum-of-parts valuation is unavoidable given some of our underlying investments in listed entities (this is typically referred to as a “holding company discount”). We also recognise that the market is not attributing full value to our core business at this stage given the stage of development of some businesses, but our strategy is to focus on scaling these businesses and driving profitability and meaningful cash generation. This will become difficult for the market to ignore and should thus rectify the discount over time.”

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