Five months after announcing plans to spin off its pay-TV business unit to unleash hidden value for shareholders, Naspers finally listed MultiChoice Group on the Johannesburg Stock Exchange last Wednesday, with the stock opening trading at R95 thus putting the company’s initial valuation at about 42 billion ($3 billion).
The stock jumped as high as R112 during intraday trading on Wednesday before easing downwards to around R98 on Friday.
Analysts had earlier forecasted in September that they expected the company to be valued around $5-6 billion, twice the value the company opened at on Wednesday.
However, the company was unable to reach this target valuation in a deal that saw Naspers transfer ownership of the company to existing shareholders, raising zero cash for the company from the deal.
According to Bloomberg Intelligence analyst John Davies, “MultiChoice’s valuation could eventually settle at about $5 billion to $6 billion. The shares may be volatile in the meantime, however, as Naspers shareholders who automatically receive MultiChoice stock take time to decide whether or not they want a pure Africa-TV play”.
MultiChoice, which Reuters described as a “de facto TV monopoly in Africa”, last year contributed around 18 percent of Naspers’ total sales of $20.1 billion. MultiChoice has a presence in around 13.5 million households in Africa and generates around 6 billion rand ($403 million) in annual trading profit.
Despite letting go of a profit machine, the deal still makes sense for Naspers shareholders. This is because since striking gold with an early-stage investment in Chinese tech giant Tencent Holdings Ltd. in 2001, the company has sought to redefine itself as a global internet business rather than a South African TV and newspaper provider.
However, its 31 percent stake in Tencent has proven a curse as well as a blessing, with the market valuing the shareholding at more than Naspers “as a whole” meaning businesses like MultiChoice have been worth nothing to investors.
The value of Naspers shareholdings in Tencent as at Friday was worth around $126 billion compared to the market capitalization of Naspers which traded around $95 billion, leaving a discount of around $31 billion. Through the spinoff, investors have now closed the discount from $31 billion to $28 billion through the IPO which values MultiChoice around $3 billion.
Although the spin-off has done little to close the discount, Naspers has also stated that it is considering other options aimed at closing the discount, including ensuring that its e-commerce businesses swing into profit soon.
IFEANYI JOHN
