The South African media group is creating a new company comprised of tech sector investments, with Chinese tech titan Tencent as the crown jewel.
The spinoff, under working title of NewCo, will be listed in Amsterdam. Analysts estimate its market value at around $100 billion, which would make it Europe’s second-biggest technology firm after SAP. But while it will be listed in the EU, NewCo will not do much business in Europe. This is because most of its value lies in its one-third ownership of Tencent. The South African group purchased a 31% stake in the Chinese tech conglomerate for $32 million in 2001 that is now worth $133 billion.
Naspers started out as an Afrikaans newspaper group in 1915, and over the past century has grown into a sprawling media and internet group that provides online communications, entertainment, gaming and ecommerce services in more than 130 countries.
Naspers is also a prolific investor, especially following the success of Tencent. It has invested in numerous tech sector startups, mainly in emerging markets – so many that it has outgrown the Johannesburg stock exchange, where it now makes up a quarter of the local index, The Economist reports. Hence its move to list in Amsterdam, which has similar listing requirements and, to the relief of some foreign investors, a more stable polity and currency. Naspers already has staff there.
The group will be split, with part of it relocating to Europe. This should help to narrow the gap between the value of the stakes in businesses that Naspers owns, most notably Tencent, and Naspers’ own market capitalisation, which is lower. The South African media company estimates that the discount has widened from around 25% four years ago to over 40%. This puts its executives in an unenviable position, where investors assign more value to the company’s equity holdings than to its enterprise.
Japanese conglomerate SoftBank has found itself in a similar quandary – quite similar, as it owns just under a third of Alibaba, another star of China’s wildly successful tech sector. SoftBank is of the opinion that investors give disproportionate recognition to its stake in Alibaba in comparison to its other businesses. These include American telecoms firm Sprint, as well as its $100 billion (and growing) Vision Fund, which has invested in a plethora of tech startups.
American internet pioneer Yahoo, in yet another example, offers a cautionary tale. When it sold its operations to Verizon in 2017, it created a spinoff called Altaba to house its stake in Alibaba and Yahoo Japan. Investors subsequently treated Altaba, and arguably Yahoo itself, as a proxy for Alibaba. On April 4 Altaba announced that it will sell its stake in Alibaba and close up shop.
Naspers plans to go about things differently, retaining 75% of NewCo when it lists the company later this year. It also plans to continue investing in tech startups in hopes of repeating the success of Tencent. As inspiration, Tencent itself, together with America’s Microsoft and eBay, invested $1.4 billion in Indian ecommerce firm Flipkart – and enjoyed a windfall when Flipkart was sold to Walmart last year.