Prosus has announced that it will be eliminating the unwieldly cross-holding structure with Naspers. Despite being told by investors prior to the implementation of the cross-holding structure that it would add unwanted complexity, management have now acknowledged that this has indeed been the case.

Proof of the failure was evident in the substantial widening of the discount following the implementation of the structure rather than the targeted narrowing. It was only the announcement of the large-scale share repurchase programme that began in June 2022 that has successfully narrowed the discount. To-date, the company estimates that the repurchase programme has resulted in an 18% reduction in the discount to net asset value at the Naspers level and 16% at the Prosus level, unlocking $29 billion of value.

The repurchase programme is being conducted at both the Prosus and Naspers levels. Prosus is selling Tencent shares on the open market in Hong Kong and using the proceeds to repurchase its own shares in Amsterdam. Prosus has repurchased 9% of its issued share capital since the inception of the programme. In conjunction, Naspers has been selling Prosus shares to fund the repurchase of its own shares. To date, Naspers has repurchased 6% of its shares in issue.

One of the reasons for the dismantling of the cross-holding structure is the limitation it places on Naspers’ ability to repurchase more than 10% of its issued shares.

Under the current structure, Naspers owns 62% of Prosus and Prosus owns 50% of Naspers. However, because the cross holding between the companies is eliminated on consolidation, the economic interest of the underlying investments held by the “public” shareholders of the companies is split 57%/43% between Prosus and Naspers, respectively.

The proposed transaction will result in Naspers’ ownership reducing to 43% of Prosus and the near elimination of Prosus’ stake in Naspers. The lowering of Naspers’ stake in Prosus will be achieved through the issuance of 910 million Prosus shares to shareholders other than Naspers, diluting its ownership stake from 60% to 43%.

Prosus’ stake in Naspers will be diluted to just 0.2% through the issuance of one trillion Naspers shares to shareholders other than Prosus. Upon completion of the share issuance to shareholders, Naspers will then consolidate its shares in the ratio of 2800 to 1.

The companies will be sending out a circular with the finer details of the proposed transaction in the coming weeks. Prosus expects it to be completed within the next 3 months.

Based on the approximate shares to be issued disclosed by the companies, which may be subject to change when the circular is released, we have calculated that the number of shares held will change as follows:

  • If you are a Prosus shareholder, you will receive just over one additional share per current share owned. If you own 100 shares, you will own 204 shares after the transaction.
  • If you are a Naspers shareholder, you will receive around six-tenths of a share per current share owned. If you own 100 shares, you will own 164 shares after the transaction.

Despite the change in the number of shares held, the theoretical value of your holding in both companies will remain the same.

While the transaction will affect the base cost/cost value of your shares, it will not be a tax event.