FROM NASPERS TO PROSUS: HOW THE UNBUNDLING OF NASPERS COULD AFFECT YOUR POCKET

fhbc_rocketmailer_nov_01_13Background

All of Naspers’s internet interests is being unbundled into a new, foreign company, called Prosus, which will be listed on the Amsterdam exchange (Euronext Amsterdam).  After the Extraordinary General Meeting held on 29 May 2019, Naspers management explained that Naspers will own at least 73% of Prosus, while 27% will be free float.

What is the reason behind this move? 

The driving force behind this decision is the rather high discount rate of 40% at which the Naspers shares are trading, which management wishes to decrease.

What is a discount in this regard?  Naspers’s assets are valued at $140-billion (amounting up to over R2-trillion or EU125,7-billion), whilst the market capitalisation of the shares is $100-billion.  This lower capitalisation value gives effect to a 40% discount to its actual value, at which the shares are trading.

One of the factors contributing to the said share price discount, as set out by the Naspers management, is its relative size on the Johannesburg Stock Exchange (JSE).  Naspers’s weight in the JSE All Share Index (Alsi) has increased in 2013, from 5% to 20% at present – which led to forced selling by investors (because of the limitations on the amount of exposure they are allowed to on any single company).

Thus, because of the above factors, management decided to unbundle, which is a strategy to access a larger pool of capital.

Why Euronext exchange? 

  • Euronext exchange, is the largest stock exchange in Europe, and ranks 7th largest in the world (in comparison to the JSE ranking 18th largest stock exchange in the world).
  • Euronext is connected to all the European markets, meaning that it will give Prosus access to much broader and deeper investor bases.
  • Naspers, which will be joining global technology (and other) firms, will– together with Shell and Unilever, be one of the three biggest listings on the Euronext.
  • Therefore, it can be seen that, the Euronext choice is a mechanism to realise its strategy of accessing a larger pool of capital, as mentioned above, which will ultimately narrow the shares price discount.

Will Naspers shares still be listed on the JSE (Johannesburg Stock Exchange)? 

Yes, Naspers will continue to have its primary listing on the JSE – and Prosus will receive a secondary, inward listing on the local stock exchange.

How will it affect Naspers shareholders? 

Part of the unbundling plan Naspers shareholders were given two options, from which the shareholders may elect one of the options (shareholders can’t elect both).

The options can be summarised as follow:

  1. Option 1:  Naspers shareholders may elect additional Naspers N ordinary shares; OR
  2. Option 2:  Naspers shareholders may elect to receive Naspers M ordinary shares; which shares will automatically be exchanged for Prosus ordinary shares (once Prosus is listed on the Euronext in Amsterdam).  This option is also the default option, where shareholders did not explicitly select option 1.

The tax consequences 

With regards to the first option, where shareholders elected additional N-shares (Naspers Shares):

  • The additional shares will be obtained at a nil base cost, and no immediate South African tax consequences will arise.
  • Capitalisation shares are tax neutral and capital gains tax (CGT) will only be triggered and payable whenever the shares are sold in the future.
  • The base cost of the Naspers N shares which a shareholder retains will not be affected by this transaction.
  • When using the weighted average cost (WAC) method to calculate the CGT, the impact of the new shares issued at a zero-base cost will, however, lower the overall WAC of all the shares.

With regards to the second option, where shareholders elected to receive M-shares/the Prosus option:

  • This option triggers CGT.
  • The initial cost of these M-shares for purposes of CGT will be deemed nil – while the proceeds will be the price at which the M-shares will be listed.
  • A capital gain will thus be realised on the day that the M-shares are converted to the NewCo/Prosus shares.
  • This option seems to be handled as two separate transactions, with the first being the purchase of the new Prosus shares and the second being the sale of the M-shares.

The time frames 

Naspers and Prosus shares were listed on the Euronext and JSE on the 11th of September 2019.  The date of the capitalisation issue and implementation of the Naspers N shares and the Prosus N shares was 16 September 2019.  The full timetable (drafted and published by Naspers) which lists the certain key dates for the unbundling transaction, can be found at:

https://www.naspers.com/news/sens-listing-of-prosus-n-ordinary-shares-on-eurone

The proof is in the pudding 

Having a look at what happened on the 11th of September 2019, we have included an excerpt from a News24 article, below (https://www.fin24.com/Companies/ICT/heres-how-much-naspers-investors-made-from-todays-prosus-listing-20190911):

“Say you owned 1 000 Naspers shares at the close of Tuesday:

At the closing price of R3 522.82 last night, you would own R3.522m in shares.

If you elect to receive the Prosus shares (which is the default option):

By Wednesday afternoon, your Naspers shares would be worth around R2.4m and your new Prosus shares would be worth R1.2m.  Together, you now own R3.6m in shares – a gain of around R78 000, or 2%.  But that’s before capital gains tax.

If you elect not to take Prosus shares:

You will have 1 000 original Naspers shares and you should get an additional 369 “new” Naspers shares on Monday, says McCurrie.

Therefore, you now own 1 369 Naspers shares at around R2 400 – equal to R3.29m.  This is a 6% loss – but you don’t have to pay capital gains tax, unlike the Prosus holders.

“But remember the Prosus shares are in their first day of trading and the big volumes will only start to trade next week following the launch of the new Prosus shares,” says McCurrie.

“The Prosus share price is still in a period of price discovery and any material pricing irregularities will be arbitraged out by the market.”

In conclusion, with the election period being over and the new company, Prosus, already listed on the Euronext in Amsterdam (11 September 2019), South African shareholders must make sure that they understand the tax consequences of their elected option (if they have not already received financial advice, in this regard).  If, however, a shareholder is unaware of his/her option’s tax implications, it may lead to tax non-compliance in SARS’s in terms of the Income Tax Act No. 58 of 1962 and the Tax Administration Act No. 28 of 2011, which in its turn, may result in tax penalties and interest.

For more information, you are welcome to direct your query via email to Chantél van der Merwe at c.vandermerwe@fhbc.co.za.

Source Reference:

Naspers website:
https://www.naspers.com/news/sens-listing-of-prosus-n-ordinary-shares-on-eurone

Prosus website:
https://www.naspers.com/news/sens-listing-of-prosus-n-ordinary-shares-on-eurone

Fin24 website:
https://www.fin24.com/Companies/ICT/heres-how-much-naspers-investors-made-from-todays-prosus-listing-20190911

Moneyweb article by Duncan McLeod: Naspers CEO in R1.9bn pay, options bonanza, 22 July 2019.

PSG Wealth article: Naspers and NewCo – what you should now, June 2019.

Moneyweb article by Duncan McLeod: Naspers CEO in R1.9bn pay, options bonanza, 22 July 2019.

PSG Wealth article: Naspers and NewCo – what you should now, June 2019.