Prosus faces investor criticism over $144 million fee for Naspers share swap

Mergence

27/07/2021 13:22

* Fees include 95 mln euros of securities transfer tax
    * Fees are three times more than Prosus listing fees

    By Promit Mukherjee
    JOHANNESBURG, July 27 (Reuters) - Technology investor Prosus
will pay up to $144 million in transaction fees when it buys a
block of parent company Naspers' shares, according to a document
submitted to stock exchanges on July 12, prompting criticism
from investors. 
    The fees total more than Prosus' free cashflow for the year
ended March 31, and are almost three times more than Naspers
paid in 2019 to list Prosus on the Amsterdam Stock Exchange.
    Some 95 million euros ($112 million) of the fees will be to
cover securities transfer tax (STT), according to the document,
reviewed by Reuters. The rest will be for costs such as fees for
bankers, lawyers and accountants. 
    Prosus was spun out of Naspers in 2019 to hold the South
African group's international assets, including its 29% stake in
Chinese tech giant Tencent  0700.HK . Naspers hoped the move
would reduce the discount its shares traded at to the value of
its holding in Tencent. 
    However, the discount kept widening. 
    To try to address this, Prosus said in May it would issue
new shares to buy up to 45.4% of Naspers in a share swap
deal. urn:newsml:reuters.com:*:nL1N2MZ0CF
    The deal will move more of Naspers' Tencent stake to
Amsterdam from Johannesburg and, according to the two firms,
help Naspers close the value gap to its Tencent stake because
Prosus' stock is more highly valued than Naspers'.
    The deal will also increase Prosus' free float on Euronext.
    "The overall costs are less than 1% of the total value
unlock that happens on day one as result of exchanging high
discount Naspers shares to lower discount Prosus shares," Prosus
told Reuters via email. 
    But some shareholders are unhappy with the costs after they
had opposed the deal, saying it would create a complicated
cross-holding structure that might increase the discount. 
    "I wouldn't want to see such huge amounts of money being
paid," said Peter Takaendesa, head of equities at Mergence
Investment Managers in South Africa.
    "It is quite material, especially if we are comparing the
two transactions," he said, referring to the fees paid during
the listing of Prosus. 
    Mergence was among 36 fund managers from South Africa who
wrote to Prosus' management in June opposing the transaction.
    In a shareholder vote on July 9, the transaction won 90%
backing, because over two-thirds of Prosus is held by Naspers.
But up to 47% of outside shareholders in Prosus voted against.
    When Naspers listed Prosus in 2019, it paid 29 million euros
to financial advisers, compared with the 20 million euros Prosus
will pay them for the share swap, the document shows.
    Prosus notes the bulk of the fees are due to tax, but some
investors said that was no excuse.
    "When you're doing a bad transaction, and a transaction that
many shareholders have expressed a concern on, then any amount
you pay is too much," said Rajay Ambekar, CEO at Excelsia
Capital, a Cape Town-based asset manager with shares in Naspers.
    "It is a real cost that shareholders are having to bear."
    ($1 = 0.8491 euros)
    ($1 = 14.8968 rand)

 (Reporting by Promit Mukherjee
Editing by Rachel Armstrong and Mark Potter)
 ((promit.mukherjee@thomsonreuters.com; +27 64833 4448;))