[dropcap]A[/dropcap]lbert Saporta, a director of Geneva-based investment advisory firm AIM&R has written an open letter to Naspers CEO Bob van Dijk accusing him of destroying R334bn of shareholder value since his appointment more than three years ago.

AIM&R is a shareholder in Naspers, but Saporta would not disclose the size of its stake. The value destruction he refers to is allegedly situated in Naspers’s investments and business excluding Tencent, and is apparent if its investment in Tencent is stripped out.

“Since your appointment at the helm of Naspers, the value of the Tencent stake relative to Naspers’s market capitalisation has grown from 90% to 130% today and seems to accelerate. Correspondingly, as implied by the market, the value of Naspers’s dozens of other investments and businesses has declined from a value of R34bn to negative R300bn. This can be simply calculated by subtracting the value of the Tencent stake from Naspers’s market capitalisation. In other words, in the last three years, R334bn of shareholder value has been destroyed,” Saporta wrote in the letter.

He called for Tencent to be unbundled to Naspers shareholders.

Naspers head of investor relations Meloy Horn said nobody at the group had received the letter. She said Naspers views Tencent as an appreciating asset and has no plans to sell or unbundle its stake.

According to Bloomberg, Saporta is the former head of research at Makor Capital. He was a founding partner at AIM&R and has 30 years’ experience in global financial markets, with the past 21 years as a hedge fund manager. Saporta sold his research and hedge fund management businesses of AIM&R to ABN Amro in March 2006.

In his letter, Saporta referred Van Dijk to a similar letter he addressed to the chairman and CEO of ASM International six years ago about value destruction. “My letter started a campaign that resulted in ASM International selling off most of its stake in ASM Pacific to the benefit of all shareholders,” Saporta wrote.

Lobbying other shareholders

He told Moneyweb on Sunday that he will be lobbying other Naspers shareholders and hopes the letter can start a review process that will lead to a contraction of the discount at which Naspers is currently trading.

Tencent’s headquarters in Shenzhen, China

In his letter, Saporta said it is “particularly unacceptable” that Van Dijk’s own compensation is based on a share option plan that rewards him for an increase in Naspers’ share price “for which you are absolutely not responsible”. Saporta alleged that part of Van Dijk’s remuneration is based on share appreciation rights for his portfolio companies. “However, this incentive may only have an impact when all of these various holdings are effectively monetised. Until then, the process of calculating the value of Naspers’s unlisted businesses is not fully transparent.”

Saporta argues that investors in Naspers are being doubly punished, firstly because a direct investment in Tencent would have earned them a 35% return, as opposed to the 24% Naspers delivered, and secondly because the other Naspers businesses “are being implicitly and constantly devalued to the point of reaching a significant negative value”.

Saporta called on Van Dijk to exercise his fiduciary duty to increase shareholder value and proposed a realignment of his remuneration with the performance of the non-listed ex-Tencent business as well as total transparency on the internal value calculations for that business.

He called Naspers an “inefficient” entry point into Tencent. “Tencent’s value in Naspers has just become too large. Investment companies regularly sell at discounts to net asset values. However, in the case of Naspers, the problem is exacerbated by the fact that one trades in Johannesburg, while its overwhelming value trades in Hong Kong. Both represent widely different pools of investors.”

He proposed that Van Dijk consider spinning off Tencent to Naspers shareholders. “An investor buying R10 000 worth of Naspers at the beginning of 2015 would have R16 500 today. He would have R27 000 had he been invested directly in Tencent. By continuing to hold onto Tencent’s stake passively, you are not creating any added value for shareholders. To the contrary,” he said. He then made a detailed proposal about how such a spin-off could be implemented.

Saporta called for Naspers to become a more active investor after such unbundling and concluded: “The way the Naspers discount has been building up and how value is being implicitly destroyed at Naspers is unbearable. I call on you and the board to put a stop to this and clearly state as a company objective that you are seeking convergence between the net asset value and the market value of the company, as well as aligning your compensation with this goal.”

According to Naspers’s 2016 annual integrated report, Van Dijk’s emoluments totalled US$1.7m for the period.

Naspers responds

Horn said Naspers takes issue with Saporta’s “incorrect and myopic way of displaying the massive value creation for our shareholders”. She said there also seems to be some disconnect between his shorter-term expectations and the longer-term timeframe it takes to build successful platform businesses.

“A discount to our sum-of-parts valuation is unavoidable given some of our underlying investments in listed entities (this is typically referred to as a “holding company discount”). We also recognise that the market is not attributing full value to our core business at this stage given the stage of development of some businesses, but our strategy is to focus on scaling these businesses and driving profitability and meaningful cash generation. This will become difficult for the market to ignore and should thus rectify the discount over time.”