Naspers Limited (NPN.JO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Naspers and Prosus Investor Call. The presentation and discussion in this conference call are not for release, publication or distribution directly or indirectly in or into the United States or any jurisdiction in which such release, publication or distribution would be prohibited by applicable law. If you are an analyst based in the United States, you must drop from this call now. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Eoin Ryan. Please go ahead, sir.

Thanks, Claudia. Hello, everyone, and welcome to the conference call today to discuss Prosus' exchange offer for 45.4% of Naspers shares. As per usual, on the call with me today, I have our CEO, Bob Van Dijk; and our CFO, Basil Sgourdos. Bob and Basil will walk through the rationale and specifics of the transaction, and then we'll open up the call for questions. So with that, I will turn the call over to Bob. Bob?

Yes. Thanks, Eoin. And thanks, everyone, for joining the call today. And please note that this is a product of many months of hard work by the team and hard work that I know will result in meaningful value creation for our shareholders both at the close of this transaction and in the future. So as a group, we have a strong legacy of investing in and growing our businesses at great rates of return, and we're committed to that path. And along the way, we will continue to do all the smart things necessary to ensure the value of that portfolio is appropriately recognized. And this is what brings us here today. So today, we are announcing a critical step in unlocking value for our shareholders by solving Naspers' outsized weighting on the JSE, increasing the size of Prosus and more than doubling Prosus' free-float shareholders' economic interest in the company. So this is a great step in creating value for our shareholders for a number of reasons. One, it is -- it immediately unlocks billions of dollars of value and provides a stable structure optimized for future value creation. Second, it directly addresses what we believe is a key driver of Naspers' discount by almost halving its weighting on the JSE while still remaining South Africa's most valuable company on the JSE. Third, it further improves Prosus' investment profile, increasing its free float economic exposure to Prosus' NAV by more than 100%. Fourth, it maintains the benefits of the current structure and tax grouping status. Fifth, it [ diverse ] future operational, strategic and financial flexibility. And finally, as a group, we are committed to ensuring the success of this transaction by backing it up with the support of up to $5 billion to repurchase Prosus shares. So let's begin on Slide 2, which illustrates how today's announcement represents the next step in our value creation journey. This is a journey that has created meaningful value over time and one which I'm confident will continue to generate superior returns for our shareholders. Additionally, this transaction underlines the group's commitment to addressing the holding company discount and builds on other actions that we've taken over the past 3 years. So those actions include the unbundling of MultiChoice Group, the listing of Prosus on the AEX and the ongoing $5 billion share buyback program. So importantly, while we have been taking action on structure for our shareholders, we have delivered on the most important drivers of long-term success, so we've seen our investments deliver an over 20% IRR over a decade, which is an exceptional track record. Furthermore, we delivered accelerating revenue growth. So the ex Tencent part of our business was growing at more than 50% year-on-year at our latest results announcement. This is shaping our future. And to understand where we're going in terms of company structure, it is best to start with where we've come from. And here the initial listing of Prosus in September 2019 has set the stage very much for today's announcement. And this, you can see here on Slide 3. So the group has a long history of generating significant returns for our shareholders. So when I took over as group CEO in 2014, the Naspers SWIX weighting was well below 10%. However, by 2019, Naspers' size has grown -- had grown to about 25% of the SWIX, and this has also become untenable. And it was forcing many investors with single-share limits to sell Naspers even as it meaningfully outperforms the JSE, so this selling drove a widening of the discount to net asset value. And to begin addressing the problem, Naspers moved 26% of its market cap from the JSE to the AEX, to the European listing of Prosus in September 2019. And you can see from the slide on the right-hand side this listing was very successful. It reduced Naspers' size on the JSE and it unlocked $16 billion of value for shareholders. And as you can see on the right-hand side of this slide, it's clear that, had we not acted in 2019 to separately list Prosus, our weight on the SWIX would have been well above 30%. Now there's no way of telling how large our discount would have been had we not taken action, but it's clear that it would be materially larger than it is currently. However, based on our consistent outperformance, it was clear that we would need to take further action, as you can see on Slide 4. So indeed, just 18 months after Prosus' listing, Naspers' weight on the benchmark JSE SWIX index increased back to 23%, and that was driving a material widening of the discount to net asset value. So this is the result of significant outperformance of the indices by consumer Internet companies in 2020, during the pandemic in general, and also our e-commerce portfolio's very strong performance in particular. So now let's turn to Slide 5. Coming to the announcement today, we have over the last 12 months assessed a range of potential actions. And each required careful and holistic analysis especially given the many regulatory, financial and tax considerations. So our ultimate goal was to achieve the following objectives: so one, reduce Naspers' overweight position on the SWIX; second, expand the size of Prosus on the Amsterdam Euronext; and improve Prosus' liquidity, trading dynamics and international appeal. We also wanted to take an action which preserves future operational, strategic and financial flexibility. And we wanted to create a long-term solution that delivers value for all shareholders. And with the proposed transaction, we achieve all of the above and more. We're addressing Naspers' oversized weighting for the long term. We're doubling the Prosus free float's economic exposure to the company. And we are preserving all of the benefits we enjoy today from the current group structure and tax grouping status. So we also stand behind this transaction by committing up to $5 billion to share repurchases at the Prosus level. Furthermore, I'd like to make it clear that Naspers will not sell Prosus shares. So the cross-holding agreement will also include an undertaking by Naspers that it will not sell Prosus shares for a period of 12 months after the implementation of the proposed transaction. Importantly, what we are proposing creates immediate value for Naspers and Prosus shareholders at the time of transaction but even more so in the future, as you can see on Slide 6. For Naspers shareholders, the long-term and immediate value creation is clear, that shareholders will get immediate value accretion from exchanging shares in Naspers into the lesser-discounted Prosus shares and that value will continue to compound at a lower discount over time as Prosus' value grows. Thus the shareholders will also benefit further from the NAV accretion at the Prosus level. Importantly, while we are resizing Naspers on the JSE for the long term, the company remains the largest company in South Africa by market capitalization. For Prosus shareholders, the free float's effective ownership of the underlying assets increases to 59.7%. And buying Naspers shares at a higher discount will be NAV accretive because Prosus is effectively buying back high-discount shares with lower discount shares. And this transaction truly cements Prosus' capital markets profile as Europe's largest consumer Internet company. It improves its liquidity further and significantly increases its index weightings, which will lead to associated active and passive fund inflows. So this brings us to the specifics of what we're proposing today, which I'll now ask Basil to walk you through. Bas?

Thank you, Bob. And thanks, everyone, for joining us today. I'm very glad to be able to put some detail to the questions that many of you have been asking over the past year. The team has worked very hard on this transaction. We believe it creates significant value for shareholders immediately and into the future. The transaction addresses a number of structural issues and preserves our ability to continue to execute on our strategy. So on Slide 7, you will see what we are proposing. And the transaction addresses Naspers' outsized weight on the JSE and more than doubles Prosus' free float economic interest in the underlying net asset value, a great outcome for both sets of shareholders. Before I get into the proposed solution, it's important to note that there were many other ideas that we explored. We looked at every idea carefully and thoroughly. In doing this, we invested considerable resources and time through the course of 2020. This was time well spent, as we learned a lot and developed a framework with the following set of priorities. First, any action has to comply with regulation. These are very complex. Second, we must take action aimed at not only addressing the discount but also ensuring that we're able to continue to execute on our strategy. Third, we must develop a solution that is in the interests of and has broad appeal across both the Prosus and Naspers shareholders. And finally, we must choose an efficient and implementable approach with limited execution risk. After careful and comprehensive evaluation of the options available to us, it's clear this transaction delivers on all these priorities. The mechanics of the transaction are outlined in detail on the slide, but here are the headlines. First, a core principle of this transaction is our desire to share the value created on the day of the transaction according to the Naspers and Prosus free float's ownership of the Prosus net asset value. It is from this principle that the exchange ratio is derived. As such, Prosus will offer 2.27 newly issued Prosus shares in exchange for Naspers shares, to acquire an additional 45.4% of Naspers issued ordinary shares. This, when coupled with the recent open-market purchases of Naspers shares buy Prosus, will bring the Prosus interest in Naspers up 49.5%. Following the exchange of shares, the Prosus free-float shareholders will own up to 42.8% of the Prosus ordinary shares but because of the cross-holding will own 59.7% of the underlying economics in the Prosus portfolio. That's a significant step-up from the current 26.8%. The transaction is voluntary. Naspers shareholders can tender up to 100% of the holding, and if that happens, we'll have to scale people back. On Slide 8, we dive more deeply into the mechanics of this transaction, and we see that this transaction creates a long-term solution. Through the cross-holding and therefore Prosus' 49.5% shareholding in Naspers, which owns 57.2% of Prosus, we've created a longer-term solution rebalancing Naspers' size but also giving it much more room in which it can grow. You can see here on the right-hand side of the slide that, in order for Naspers to return to the mid-20% of the SWIX once again, Prosus itself would have to add another $225 billion in value. That's more than doubling itself. I think we all agree that's a quality problem to have. So turning now to Slide 9. This transaction has the potential to create meaningful value over the long term as shareholders switch out of higher-discount shares to lower-discount shares. It will create meaningful value on the day of the transaction due to the spread of the 2 discounts. We've considered and debated and we've agreed that the most appropriate way to apportion that value creation on the day is to share this value according to the respective free float's current ownership of the underlying net asset value, so Naspers shareholders will get 72.6% of that value. And then the Prosus free floats will get 27.4% of that value creation. And effectively that's what yields the 2.27 exchange ratio. On Slide 10, you will see that a critical factor in securing the necessary approvals needed to make this transaction possible was maintaining Naspers' control of Prosus and not changing the group's tax status. We will achieve this by issuing newly created B shares, and that -- and those shares are only capable of being held by Naspers and will have negligible economic rights. As a result, under the South African tax code, Prosus will continue to be classified in a manner which preserves the critical tax grouping benefits. The cost of losing this status for Naspers shareholders will be very significant and will track meaningfully from value created by this move. In reality, from a control perspective, nothing really changes from today given the current protection structure in place at Prosus. As part of the overall transaction approval, Prosus shareholders will be asked to support the B share structure. While this transaction will unlock value on the day, Slide 11 illustrates the significant initial upside that can be realized from further reduction in the discount over time. So to remind you: Every 5% improvement in the discount represents $13 billion in value creation. Now we know there is no silver bullet, but we believe this transaction will help meaningfully. Additionally, we can -- we will continue to improve our operations, our disclosures and our ESG scores while investing capital at strong rates of return to continue to build value over the long term. If we continue on this path, we believe firmly that we will create meaningful value for our shareholders. Before I turn the call back to Bob, I want to highlight a very important component of this transaction on Slide 12, which is the cross-holding arrangement we have put in place between the 2 companies. The reason for doing this is to really eliminate any complexity that comes with the cross-holding and to give shareholders real certainty as to how this will work. So the details are set out on the slide, but in a nutshell, the intent is to achieve 3 very important things both for the Prosus and the Naspers shareholders. First, it clearly set out the economic interests of the various shareholder groups in Naspers and Prosus. Second, it gives necessary certainty to both Prosus and Naspers shareholders that the terminal economic interest will be given [ effective ]; and third, to ensure efficient and effective ongoing interaction between Naspers and Prosus by avoiding the round-tripping of cash and assets in the structure, thereby removing financial and administrative inefficiencies. In order to achieve these objectives, the cross-holding arrangement allows for the distributions to be made by Prosus on a terminal economic value basis. A terminal economic value distribution requires that both sets of free-float shareholders receive their ultimate interest of any Prosus distribution. This means that Naspers will need to distribute automatically any distribution it receives from Prosus to its free-float shareholders. And Prosus will need [ to waive in advance ] any impact onward -- to onward distributions declared by Naspers. This is a key part of the transaction, codifies the respective free float's interest in the underlying Prosus NAV and simplifies the cross-holding structure. This will be done through a cross-holding agreement and, importantly, an amendment to the Prosus articles of association. Finally, some housekeeping on Slide 13, which sets out the high-level key steps to implementation. So following this announcement today, we plan on issuing the EGM notice and a Prosus prospectus. We then plan to host a Prosus EGM, open the offer immediately thereafter and then look to close the transaction in the third quarter of 2021. So with that, I will now turn the call back over to Bob.

Yes. Thanks, Bas. And before wrapping up and getting to your questions, I would like to take the opportunity to highlight our commitment to South Africa. And in fact, in terms of our investments in consumer Internet in South Africa, we have never been more active than we are now. So on Slide 14, you'll see South Africa is close to our hearts. It's Naspers' home, and we've operated in South Africa for more than 100 years. We have many thousand employees there. And we recognize our role and importance to South African investors, which make up of more than 40% of Naspers shareholder base, so in South Africa we remain committed to giving back to the community. So we stepped up and contributed ZAR 1.5 billion of aid to support the government's response to the COVID-19 crisis. We've done community investments in the country through Naspers Labs, and more importantly, we've also committed to invest ZAR 1.4 billion to boost the South African technology sector through Naspers Foundry. And we do this by providing funding, know-how and support to help South African entrepreneurs and businesses of tomorrow grow and prosper. With all of this, we will continue to have a positive impact on the future of South Africa. And as -- and if we can take you to Slide 15. South Africa will benefit significantly from this transaction. So post transaction, Naspers will remain the largest listed company in South Africa and, through its inward listing process, is likely to be the second largest company in South Africa, meaning that sizable trading will remain [ in the complex ] on the JSE. So the transaction is expected to attract additional international investor demand into Prosus and Naspers on the JSE over time. South African investors constitute approximately 44% of the Naspers shareholder register and will be the largest group to benefit from the proposed transaction. The Naspers and Prosus listings on the JSE provides South African investors with the ability to diversify their portfolios geographically and to gain access to the technology sector and some of the world's fastest-growing Internet companies. And finally, the proposed transaction is expected to generate between ZAR 3.8 billion and ZAR 5.8 billion of tax revenues for SARs. And finally, on Slide 16, I also wanted to underline my and the Board's commitment to further strengthening our sustainability framework. So our commitment is in line with the expectations of the shareholders. We understand that our role in society goes beyond just creating shareholder value. And we've stepped up our game on our impact on the climate, our diversity and inclusiveness and our governance. And we've come a long way here in a short amount of time, and while there's more to do, we're making rapid progress. My vision is to have sustainability lie at the core of building out our businesses and also in our investments, which I believe can go hand-in-hand with value creation. So to close, on Slide 17. I'm very excited to be able to announce this transaction and to begin engaging with all of you on it. So this proposed transaction has very clear benefits for all our shareholders because it, one, significantly improves Prosus' liquidity. And it more than doubles its free float to 59.7%. So it unlocks substantial value at the time of transaction and in the future, and it establishes a stable structure for future value creation. It also directly addresses a key discount driver by reducing Naspers' size on the JSE while maintaining the company's status as South Africa's most valuable company. And finally, it maintains the current structure and tax grouping status. So with that, I want to thank you for your time, so far. And let's open up the lines for questions from here. Operator?

[Operator Instructions] The first question comes from Will Packer from Exane BNP.

Three from me, please. Firstly, the release mentions there's a 12-month lockup, but could you talk a little bit to the future goal of sort of developments in the structure? Is it you're pragmatic and looking for whatever the most efficient structure is for the discount while protecting your tax advantages? Or is there some other further ambition? So that will be my first question. Secondly, since we -- the last analyst call, you've made the decision to trim your exposure to Tencent, which is a key appeal of the Prosus story. Could you share your thinking on what the right long-term size of your Tencent stake is, how you're thinking about that judgment as it's so critical to the Prosus equity story? And then finally, the Tencent trimming has provided you with some additional firepower. Clearly some will go towards share buybacks, as announced today, but could you update us on how you see the M&A backdrop? Any particular sectors that you see as appealing? Those are my 3 questions.

Yes. Thanks for those questions. And let me answer the second and the third, and then I'll ask Basil to go into the first question that you asked. So on the final question you asked. The Tencent trim did add to our firepower. What is the M&A pipeline look out -- look like? I think what we said at the time we did the trim is that we actually have a very healthy pipeline of M&A opportunities out there. We see that we have focused on a number of core areas where we've developed real expertise and actually where we've demonstrated we can deliver great IRR. So a good example is food delivery. Another good example is EdTEch, right? We've invested capital there; and we've delivered IRRs that are actually in excess of 30%, 40% over the period of those investments. We think that track record [ total insight ] allows us to identify further highly value-creating opportunities in those main verticals, so you'll likely see us pursue M&A in those core sectors where we have both a track record and developed expertise. To your second question, around the Tencent trim. I think it's good to take a quick step back and see how we look at our Tencent shareholding. Like we are a global Internet operator and investor. And China is, in our view, not only the largest Internet market in the world but actually also the most innovative and attractive, so our exposure through Tencent to China is one that we think is absolutely core to the proposition we have. And more importantly, the Tencent team has demonstrated to be an exceptionally qualified and well-considered leadership team that is really able to create value in that market. So when we did the Tencent trim a number of weeks ago, we were also clear in committing not to sell further Tencent [ shares ] for 3 years. And that's because we believe fundamentally in China and we believe in the quality of the Tencent leadership team. And in addition, we also benefit greatly from that long-term cooperation we've had. We've been in business for 2 decades together, and that's a very solid and mutually beneficial relationship. So we believe that the size right now is the right size. We did sell some shares to be able to fund the expansion in our other verticals, but we are very firm believers of our future with Tencent. And Basil, maybe you could address the first question.

Thanks. Well, sort of first of all, the 12-month lockup is really there just to give people certainty that there's absolutely no question of Naspers adding supply of Prosus stock into the market, so people can take their shares with great comfort and know they have stability. You'll remember, in -- when we did the first move, there was an accelerated [ football ] that followed, and we just wanted to take that completely off the table. There is no such thing coming and it's not going to be there. So the 12 month has nothing to do with us thinking what was the next step [ here ] and then this is one step to something else. The reality is -- as I presented in the presentation itself, is this is a very sustainable long-term solution. It takes the -- Naspers' size on the SWIX down from 23%, 24-odd percent, down to 14%. And for us to get back to that 23%, we now need to create another $225 billion of value. So Bob and I and the team are up for the challenge, but we need a bit of time to do that. So I think it's a very solid solution that gives us lots of runway going forward. And then why is it the way it is? I think, the key reasons, I laid out in the presentation, but to repeat them: We wanted certainty from a regulatory perspective, and we certainly achieved that with this construct. Secondly, we wanted to do it in a way that moves meaningful market cap that -- sorry, that creates a meaningful reduction in Naspers' weight on the JSE. And we achieved that, 23% to 14%. And thirdly, we wanted to do it in a very efficient manner. And we achieved that too because not only is there no significant tax cost at the Naspers or the Prosus level, but more importantly, we preserve the group's tax status going forward. And that's not only important for us, but it's also important for the regulators who approve things [ here ].

The next question comes from Cesar Tiron from Bank of America.

Yes. I have 4 questions, if that's okay. Sorry about that. The first one would be to further understand if, this large transaction that you announced today, we should see it as an end game or more part of a journey which we started a few years ago to address the discount; and if you do expect that this transaction alone would materially close the discount or if you think something else could be needed. Especially, going down the road, do you think that you could further simplify the Naspers-Prosus structure. For example, this cross-shareholding ownership, could it disappear over time? So that would be the first question. The second one would be on SWIX and if you guys think that there's any risk that SWIX might see Prosus and Naspers as a single entity because of the cross-holding. The third one is on taxes. Have you made any progress on the tax restructuring which would have allowed you to lower the Naspers stake in Prosus to below 70%? And is that linked in any way to the creation of the unlisted B shares? And then finally, I wanted to ask a little bit more on the exchange ratio and how you thought about it because the economic ownership of Naspers shares in Prosus is about 2.75 shares of Prosus. But of course, if you looked at the average and at the related market caps, this ratio over the past year was closer to 2. But just to understand how you guys thought about the exchange ratio.

Yes. Thanks, Cesar. That's quite a few questions. Let me start maybe by covering the question on the exchange ratio. And then Basil, we can cover the rest between us. So the exchange ratio was set as it was set to make sure we had an objective and a fair value creation split between the 2 sets of shareholders. So we looked at the last undisturbed price we had, which was yesterday. We calculated what the value creation is. And then the exchange ratio is set so that, that value creation gets shared proportionally to the ownership of the free floats, right? And that, we think, is the only objective and fair thing that we basically get here. I think the -- there are other numbers that you could consider, but I think this is an objective and a fair way to share that value. Basil, do you want to add anything to that?

[ Nothing, Bob ]. I think that's well put.

Okay. So then on the -- sorry, go ahead, Bas.

Yes -- no, no. Sorry. I was going to ask about the other 3 questions that go through.

Yes, I thought I'd make a start and then I hand over so we both spare our voices for the rest of the call -- no. So the tax structuring and sort of what would happen if we go below 70%, I think, is in this case not so relevant, right? So the most important -- an important criteria for us to get the approvals was to make sure that Naspers would stay in control of the -- of Prosus. And that's why we needed the B share constructs, and that's why we've put it in place the way we've put it in place. Basil, anything to add on that?

Indeed, Bob, that's the reason, but the byproduct of it is that it also does solve this issue. So Cesar, we don't need to do more work now. That is a byproduct of this, so we're fortunate with that.

And maybe, Bas, you can cover the point on SWIX.

Yes. So at the end of the day, these are separate companies or separate exchanges, different profiles. We've had the conversation, right? Naspers has additional assets beyond those in Prosus. So the fact that one owns shares in another, I mean, that happens all the time. Many companies own shares in each other. The index companies don't go and say, "[ Well, now that you've [indiscernible] let's ] combine them. It's one weighting." I haven't seen that done anywhere in the world, so it would be quite a hard thing to now go and do here. We -- there was a conversation around this some years back. I think [ the JSE ] have made the right decision, and we expect that it continues as it is today.

Yes. No, well put, Basil. I think -- on the first question, Cesar, I think Basil actually gave the answer to the first part of your question earlier. So we see this as a stable construct, not a step towards further steps. And then we actually in the presentation, I think, highlighted why we think this is a value-creating solution, right? And I think the point that I made earlier is actually the most important one when it comes to the discount over the long term, right? So we have invested in a number of assets that have displayed exceptional IRRs over time. We've seen our e-commerce portfolio growth accelerate to more than 30% year-on-year while actually we're improving profitability. We're continuing to improve transparency. And we've made a number of value-enhancing moves and we're continuing to do that, right? So that is, I think, the right context in which you should see our efforts to create value for our shareholders. We've taken a number of steps that you know about already. And then with this transaction, we're creating a doubling of the size of the Prosus free float. We are reducing Naspers' weight on the JSE in a very meaningful way. And there is an immediate value creation opportunity and a -- then expectations around a much stronger Prosus share that will attract significant flows. So we believe [ that all on that ] combined will actually have a very positive [ effect over time ].

The next question comes from John Kim from UBS.

Could we speak a little bit about the rebalance here? So can you give us a sense of timing and quantum for how DM indices will look at this pro rata? So if you get full uptick, and the structure looks like you would like it to, how should we think about the passive weights moving? And again, any sense of timing or -- and quantum around that? Secondly, if you have partial uptick, how would you think about that? Is there a range or a critical mass that you need to generally achieve your goals? Is it more of a gradient? Or do you think of this as more of all or nothing?

Yes, thanks, John. I will answer your second question and I'll ask Basil to answer your first. I think, on partial uptake, we actually are setting a threshold for the full offering. And we strongly expect that we're going to get there, and that is fundamentally because we know this is a highly value-creating transaction for Naspers shareholders. When we introduced the Prosus listing, I think the acceptance at the Naspers level was in the 97%, 98% range because it created a lot of value. Here we see not only instant value creation that is very tangible but also longer-term value creation and improved dynamics. So I'm actually convinced we will not get into that scenario of a partial uptake, and we're setting the full transaction as the threshold.

So look. I think the key point here is that the Prosus free float doubled as a result of this transaction. It [ goes to around about $100 billion ]. And Prosus' weighting Euro STOXX, firstly, goes from roughly the 50s [ now and oscillates ], given the volatility in the market, to well within the top 20 Euro STOXX [ specific ] companies. So that's a meaningful step-up driven by the meaningful increase in free float at the Prosus level. And that's going to drive a lot of [ passive planning in ]. It generally happens very early in the process, right, but more importantly that then creates momentum and more shareholders will come in to Prosus. So a year ago, we had [ 30% ] of our shareholder base being European, in Prosus. Today, it's 37%. And we see many, many new investors and funds coming onboard. So the momentum and the inertia should only improve with this move. And it's further amplified and solidified by the fact that Naspers has given this hard commitment for the next 12 months. And we are adding a $5 billion buyback at the Prosus level.

The next question comes from Jonathan Kennedy-Good from JPMorgan.

Perhaps I could just rephrase the question from early on, the potential Prosus increase in weighting in the SWIX. Just wondered if you had a view on that as you did for the Naspers down-weighting, percentage perhaps; and if you could, I'm not sure if it's possible, to disclose what your estimates of the Prosus NAV would be on a current basis versus pro forma should the transaction be executed. And then finally, just on the B shares, you mentioned that Prosus shareholders will have to approve the issuance of those shares. Will Naspers be able to vote its shareholding stake to do so?

Yes, Jonathan, thanks for those questions. And so the -- let me start with the last question. So there indeed will be a number of components of the transaction that Prosus shareholders will need to approve, and the B shares construct is one of them. And the reason why we believe they will be supportive or sort of -- so there are sort of 2 directions to it, right? One is the fact that there will be very meaningful value creation on the time of transaction, but also for Prosus this is a massive step in terms of the size of the free float and the standing it has on the market. So there are very significant benefits for it. And in terms of what changes, well, frankly, nothing changes, right? Currently Naspers sits at the voting level where it sits. And in the future, it will then sit at the same level, which is essential for us to actually get the approvals that we need for this transaction. So the reality is, without doing that, the transaction cannot work, right? So it's not something that is introduced for any other reason than just to make the transaction a possibility. So that's why we expect strong support. I do believe that Prosus will be able to vote its shares in it, but we expect really strong support from the Prosus free float for the reasons that I mentioned. And Bas, maybe you can cover the first 2 questions.

Thanks. So indeed today Prosus' weighting on the SWIX is roughly about 1.6%. And what it will be after that really depends on the mix of the shareholders that provide shares for -- that take up the offer. So today, the Naspers shareholders own about 44% -- I'm sorry. South Africa shareholders own about 44% of Naspers. So assuming that the bulk of that came from there, the weighting would go up to roughly 7%, 8% at most, which is very manageable on any exchange, but I expect that number to be quite a bit below that because we're going to see, I think, foreign investors as well as South Africans tendering their shares. And then with regard to NAV on a current basis versus pro forma, actually this transaction doesn't change the underlying NAV of Prosus, right? The NAV that is there now is the NAV that will be there post the transaction. What it does do is it increases both the Prosus and Naspers shareholders' participation in that NAV because we take away high-discount shares and replace it with lower-discount shares. So both the Prosus and the Naspers shareholders, whether they tender or not, even if they don't tender [indiscernible], shares, we'll see an accretion because we're taking away high-discount shares and replacing them with lower-discount shares.

The next question comes from Ken Rumph from Jefferies International.

I'll be the deviate on the call and ask a question about the B shares. If I'm a Naspers shareholder, don't I end up owning these shares, as -- if I choose to tender my stock, as opposed to Naspers owning them? I don't understand how this is not a new share class that trades.

Yes. Ken, the short answer to your question is that these B shares are only created so that -- I mean actually we covered earlier why they are created. And these B shares will stay in the hands of Naspers. And in fact, they will only have any rights associated with them, as long as they're owned by Naspers.

Okay. So I get regular Prosus shares. Other voting but [ negligibly valuable ] shares get owned. So that's how you keep the voting stake. Okay, I get it, I think.

The next question comes from Marcus Diebel from JPMorgan.

Just to follow up. How comfortable are you that Naspers shareholders will tender? Because some investors highlight the argument they could have bought lower-discount shares as of yesterday effectively. I understand the premium which is in the ratio, which is not much, and potential capital gains considerations, but how comfortable are you that the majority of Naspers shareholders or a large part of the 45% you're aspiring is actually coming through?

Yes. Actually, Marcus, I think I answered that question earlier, right? So I think there is a very strong benefit to Naspers shareholders, not just the immediate value creation but actually, in the long term, from rightsizing Naspers and also the attraction of the Prosus shares because Prosus will increase so much in free float. So I think -- to not go into this, I think, would be value destructive for the vast majority of Naspers shareholders. And that's why I'm convinced they will do that. I think how -- you can argue how big is the premium. I don't think it's actually the right way of thinking about it. You should think about it in terms of long-term value creation, and there I think people will realize this is in their best interests.

The next question comes from José Gago from City of London Investment Management.

I actually have a couple of questions. First of all, can you provide further detail on why you believe this is a superior transaction compared with some of the alternatives you've considered and possibly alternatives that would realize in the shorter term more value for Naspers shareholders, potentially an unbundling of Prosus shares? It seems, from what you've discussed in the call, that regulatory approvals and tax considerations were key considerations for not being more ambitious with the transaction. So that would be my first question. The second question is around the complexity that this transaction creates. Are you concerned about investors sort of failing to understand fully and that has a negative value -- or a negative impact [indiscernible]...

Yes, you broke up a little bit towards the end, José, but I think I got the question. So let me answer the question on complexity. And I'll ask Bas to talk about the alternatives, although I think actually, Basil, a lot of that, you covered already in the presentation. So maybe we can focus narrowly on the second part of the question to avoid we repeat a lot of what's been covered. So I actually don't think at all this increases complexity, right? The transaction builds on what we already have today. And the cross-holding is really straightforward given the fact that Naspers and Prosus are essentially the same business and have the same board, right? And the main thing is that the see-through economics are crystal clear. They are split 40-60 Naspers-Prosus free float, and they will also be hard coded in the appropriate agreements. So we are actually -- we think our shareholders are really clever people. And I think over time they have proven that -- to be that time and time again. So I think that will be really clear. And we're comfortable with that.

Yes. If I could add, Bob, just 2 quick points. So indeed there would have been complexity had we done nothing with the cross-holding, but Bob is very clearly -- you articulated that you thought about that very well and we've removed it. That's -- it's that simple, by creating this cross-holding agreement. So it's a nonevent now. It's not an issue going forward, and it's clear transparency and certainty. Your question was a very specific one around why didn't we unbundle Prosus to the shareholders, right? And the answer is very simple: It comes with a massive [ taxable ] both in the Netherlands and in South Africa in the tens of billions of dollars. So that's value destructive and that's why we didn't do that.

José, does that answer all of your questions?

Yes.

The next question comes from Jean Pierre Verster from Protea Capital Management.

Basil and Bob, I'm a little bit concerned regarding your signaling that you see this as a sustainable solution rather than doing anything further after this. And specifically if you look at the ratio, it sort of ignores that the Prosus free float only has 1 holding company to the underlying investments, while the Naspers free float has got 2 companies to the underlying investments. And the ratio ignores that, so are you comfortable with this ratio [ causing mind ] -- prejudices the Naspers shareholders and benefits Prosus?

Yes...

[ Go for it, Basil ]?

[ You came up. Can I start ]...

[ You go. Sure ], yes, absolutely.

So Jean Pierre, on the second question. In fact, again, the great thing about the cross-holding agreement and the distribution structure is that you no longer have that issue because effectively any distribution that Prosus makes, whether it's [ cash shares ] or anything, needs to flow efficiently and simply through to the Naspers shareholders and the Prosus shareholders at the same time. So there isn't this double layer, and that's what the cross-holding agreement also solves for. And therefore, it -- that issue that you say is there really isn't because of that fix. Secondly, I think we've clearly articulated why we've got to the ratio we've done. And Bob has clearly explained how that is the fairest way to apportion value creation on the day, so there's not much to add there. And then on the first one, look, we've said it basically takes Naspers' weighting on the SWIX down from 25 to -- sort of 23%, 24% to 14%. And to get it back up there, we have to create $225 billion of value, so we would like to do that first. And that's task on its own. And yes, the world changes. Things develop, Jean Pierre. That's what makes [ Naspers ]. We deal with the things that are there. So it is a real solution. It's one that will stay for us for a while. And now we've got to go create another [ $220 billion ] of value, and that's what we want to do.

Jean Pierre, does that answer all your questions?

If I can briefly -- the ratio, once again, ignores the discounts that Naspers trades at to Prosus because it looks at the economic value. And at the same time, by offering this ratio, combined with saying that this is a sustainable solution, it leaves Naspers shareholders in a very difficult position of either accepting a ratio that could be seen as too low and locking in the discounts of Naspers relative to Prosus. Or if one doesn't then want to deal in the discount, you are locked into a structure that management has indicated.

Yes. I think it's -- there's a few points to be made around it, right? So we can look at what a theoretical could be. And you can look at the spot, but you could also look at what the market tells you over time, right? So if you look at the sort of spot exchange ratio over time since we've done the Prosus listing, it's closer to 2, right? So I think Naspers shareholders have the -- and I'm not even talking about the structural solution that you're offering -- that we're offering here, right, just that's -- actually is a much better deal than what the market has been telling you consistently since Prosus exists, right? So I think that's a very important point to make here. And even if that is not enough, I think the transaction creates a construct that is so much more suited for the reality we live in given that Prosus gets to be at a point where it is a massive -- a free-float stock actually unique in its proposition to investors. And Naspers is at a size that is more appropriate for JSE. And that's a -- those are structural advantages apart from even what the market is telling you today is a really good transaction.

Yes. And I will add to what Bob said, Jean Pierre. They, the Naspers shareholders, get 72.6% of the value created on day 1. That's the vast majority. And then secondly, today, their oversized position creates this problem where South Africans have to sell the stock every time we create value. Removing that dynamic, right, is a massive positive impact for Naspers shareholders. And this transaction delivers that and that value accrues fully to the Naspers shareholders. So there's many more value-creating parts to this transaction than just the value on the day, which the vast majority goes to the Naspers shareholders.

[Operator Instructions] The next question comes from Chris Wood from Prudential.

I've got 2 questions. Just a first observation. And I'd like an opinion from management, please, but management appeared to have convinced themselves that the weight of Naspers on the JSE is the primary reason for the discount. And yet what we can observe is that, since listing of Prosus, Prosus has opened up and trades at a wider discount to the same underlying portfolio of assets. Why do you therefore attribute the discount at Naspers to that of its concentration on an index, when that doesn't apply in the case of Prosus? And then the second question is for Basil. Can we assume that Prosus will be seeking a waiver of a mandatory offer given that you will be going through 35% of Naspers?

Thanks. So on the second question, Chris, we've looked at it closely, and we don't have to make a mandatory offer. We've got that advice from our Dutch council and our banks, so there is no requirement there for Prosus to make a mandatory offer -- and from South African council. So that isn't a requirement. And it's certain. It's not gray. It's very, very clear. And because, remember, ultimately Naspers' control sits in the A shares, and that doesn't change. So there's no change of control at the Naspers level either. So there's no issue there. And the advice is clear, [ no need to put color ]. It's black and white. On the first one: Look, Chris, there's no doubting that you guys have to sell shares every time the Naspers share price goes up. And it's an unnatural sell because it's in order to comply with Prudential [ limits ], so that has a significant impact on the Naspers discount. And today, the Naspers discount is wider than the Prosus one and significantly. And historically, on average, if you look at -- as Bob mentioned, it's been much wider. And I think it's a range between the 2 discounts, right, and that trades -- and it trades within a particular range. And I think some of that has to do with people sort of anticipating what's next, what it might have looked like. And there's positioning around that, and that causes things to trade in the short term. We need to take the longer-term view. And the longer-term view is not that -- is that the Prosus discount is meaningfully lower than the Naspers one. And for us, what we've got to do is we've got to continuing to deliver excellent results. We delivered 55% e-commerce growth, [ 30% ] in aggregate in the first 6 months. We hope to be able to come out with the results in June and we'll share those with you. Secondly, we need to continue to allocate capital well. Our IRRs remain north of 20%. And thirdly, we need to continue to crystallize that value. And we've had many companies that weren't listed who are now listed, and there will be opportunities to do that going forward. And then to continue to do sensible things, right? So I think, at the end of the day, [ this isn't the only ] issue, yes. You can't deny it. You can go plot it on the graph [ and resolve ]. And we'll see that, of course, [indiscernible] were reflecting the fact that the Naspers discount historically has been much higher than the Prosus one.

Yes. So [indiscernible] Prosus trades at a discount to the same portfolio of assets. So to me -- we hear about management talk about how much value they've unlocked through this creation of this very unfortunate structure, but there's no evidence that the discount today is -- has narrowed relative to where it was before the listing of Prosus.

Yes. Look, I think, if you look historically, right, if you just graph how weight on the JSE correlates to the discount, you -- I mean there is no chance in hell that it's not a major driver. And you can have an -- your own opinion on what other drivers might be, but that's just crystal clear to all involved. And I think you say, "unfortunate structure." I think -- given where we are with weightings on those exchanges, I think that's an absurd statement, frankly, right? This construct actually sets both companies up for future success. And that has been -- and the correlation between the discount and concentration is obvious. So you have your opinion, but I think it is plainly incorrect.

We have passed the hour and have time for only one more question. The final question comes from [ Sean Johnson ] from Goldman Sachs.

Two questions really. Just one, how the management incentives be structured post this completing. And then the second one is, assuming the SA regulator would allow it, are you actually, long term, open to buying in the remaining or more Naspers shares?

Yes. Thanks. I will address the first question, and then Basil and I can talk about the second. So the specific choices on how executive directors' long-term incentives will be allocated will be made later in the year by the Remuneration Committee, but it is likely that the long-term incentive will be materially rebalanced towards Prosus because the increased size of the Prosus free float, right? So currently, actually, all the long-term incentives for executive directors are at the Naspers level, and that will be much less appropriate going forward. So decisions will be made later, but a material rebalancing is to be expected.

And then to your third -- to your second question, [ Sean ]. The reality is that's not on the table. South African regulators are not going to agree to it. So I can't debate hypotheticals. That isn't an option right now. So I think there's little value in debating something that is just not doable...

I think it's actually useful to me to cover the key points just actually one more time, right? So one, it immediately unlocks billions of dollars for shareholders, and it creates a structure that is optimized for future value creation. And the unlock will come even if the discount stays where it is today, but we are convinced it will reduce. And second, it addresses a key driver of Naspers' discount with its size on the JSE. And still Naspers remains South Africa's most valuable company. Third, it fundamentally improves Prosus' investment profile. And it increases free float ownership of the economic exposure more than 100% to 59%. And importantly, it maintains all the benefits of the current structure and group tax situation. That's a huge benefit. And five, we are confident and we will back it up with an up to $5 billion buyback at the Prosus level. So we feel good about it. I hope you do the same. And we look forward to talking more later. Thank you.

Thank you very much, sir. Ladies and gentlemen, that now concludes today's conference. Thank you for joining us. You may now disconnect your lines.