Prosus Targets $5 Billion Buyback in Plan to Cut Tencent Gap

(Bloomberg) --

Prosus NV plans to buy back a combined $5 billion of shares in itself and its South African parent Naspers Ltd. in a move designed to boost shareholder value and narrow a discount between the e-commerce giant and its stake in Tencent Holdings Ltd.

The group will aim to pick up $1.37 billion of its own stock and $3.63 billion of Naspers, Amsterdam-based Prosus said in a statement on Friday. The purchase will start following the release of half-year earnings on Nov. 23.

“Over the years, our group has achieved improved financial flexibility. It has built a portfolio of e-commerce assets with significant cash-flow generating capabilities,” said Prosus Chief Financial Officer Basil Sgourdos in a statement. “The group is now in a position to both invest in its asset portfolio, and to purchase its own stock when it makes sense from a returns perspective.”

The move marks the latest in a series of efforts by Prosus and Naspers to achieve a valuation greater than the sum of its parts, and stop being seen as merely a proxy for investing in WeChat-creator Tencent. Cape Town-based Naspers was an early-stage investor in China’s Tencent, and still holds a 31% stake, but has long been overshadowed by the soaring stock price of its prized asset.

Naspers rose 4.1% at 12:08 p.m. in Johannesburg after earlier gaining as much as 4.4% to trade at 3,175 rand. Prosus increased 3.4% in Amsterdam.

Naspers spun off most of its internet assets into Prosus just over a year ago in part to resolve the problem, but the move has made little difference. Prosus has a market capitalization of about 135 billion euros ($158 billion), while the Tencent stake is worth about 193 billion euros at current share prices.

That means the market assigns a negative value to Prosus’s myriad other businesses, which span from Indian online travel agents to Brazilian food delivery and U.S. education sites.

Failed Acquisitions

The buyback also reflects an inflated cash position after failing to make major acquisitions in the booming e-commerce sector. Prosus lost an $8 billion battle to buy U.K. food group Just Eat Plc to Takeaway.com earlier this year, and in July lost out in a $9 billion auction for EBay Inc.’s classifieds business to Norwegian rival Adevinta ASA

“A lot of the international tech assets at the moment are very expensive, and it shows that they see the most value in terms of opportunities out there in their own stock,” said Renier de Bruyn, a Sanlam Private Wealth senior equity research analyst. “There is more than a 50% discount, and they like their current portfolio that they can buy at half the price, so the buyback makes sense.”

(Updates with CFO comment, analyst comment, shares)

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