We have done the research — Naspers
Analysts appear to have mixed feelings over the Naspers acquisition of Eastern European online auction business Tradus, with some talk that it may create a “value trap”.
Naspers recovered slightly on the JSE on Friday after a massive 10% drop in its closing share price following the announcement on Tuesday that it intends to buy the UK-listed company.
Analyst Rajay Ambekar of Cadiz African Harvest says analysts are expecting more reassurance as to why the potential R13,2bn deal holds value for Naspers shareholders.
Naspers says it has done extensive research, including a five-year discounted cash flow analysis, but it would not elaborate on this.
Ambekar says, in addition to this, the talk around the company possibly using equity to fund the deal “as a last resort” is also worrying. “I would have preferred for them to have said they have the cash on hand, while there is some reassurance in the fact that they plan to issue new shares only as a last resort, I would have preferred it not to have been on the list at all,” he says.
Naspers plans to use about R3,5bn of its own cash, as well as a mix of bridge funding, to be paid back at a later stage and then possibly the issuing of new shares thereafter. It says, however, that this depends on the number of shareholders who accept Naspers’s offer. The company has assurances from 17,9% of Tradus’s shareholders.
Ambekar says that stripping out Tencent, the Hong Kong listed internet company, in which Naspers has a significant stake, at its market value of R28bn, and taking out Tradus at its current purchase price, the implied “rump” of the business is trading at about a 60% discount to the market. Media businesses normally trade at a 20% premium to the market.
However, on Sunday a circular issued by Imara SP Reid analyst Steven Meintjes expressed support for the deal.
“Tradus and other acquisitions comprise vigorous action to maintain growth in earnings for the company ahead of increasing competions, both in SA and elsewhere, in what has hitherto been the undoubted jewel in the crown, pay television.
The circular says Naspers has already “paid big school fees in failed technology and internet related acquisitions in the late 90s”, and says it believes the required lessons have been learnt from this.
“As such we have no quarrel with the strategy and believe investors can accumulate at these levels.”
Naspers justified the deal, saying it was focusing on internet-based businesses, and that it wanted to capitalise on the under-utilised global emerging markets, such as Eastern Europe, Brazil, Russia, India, China and Africa.
Most of its recent acquisitions have been in this space, including the acquisition of Gadu Gadu, Poland’s leading instant messaging platform, for a possible consideration of 155m.
The deal gained 96% approval, and Naspers plans to have it tied up soon.
It also acquired Afsat Communications — an African satellite internet service provider for an undisclosed amount, as well as increasing its stake in Mail.ru, a Russian internet company, costing 26m, taking its holding in the company up to 33%.
The company’s interim report for the six months ended September says it has available cash reserves of R11,5bn.
This was before the above-mentioned deals, which sucked R2,1bn from the war chest. The Tradus deal requires 75% approval for the company to be de-listed from the London Stock Exchange, failing which Naspers says it will move to secure a 51% majority stake.
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