Technology company Naspers, which owns a controlling stake in Prosus which in turn owns 28% of Tencent, has alerted shareholders that its results for the year to the end of March are likely to be substantially higher than they were a year ago.

However, shareholders are unlikely to be moved by the results. In an unusual move, 36 South African asset managers have sent a letter to the boards of Naspers and Prosus highlighting their concerns about the proposed share exchange between the two companies and the long-standing misalignment of the executive compensation system, according to this article on Moneyweb.

The asset managers, which include Naspers’s single largest shareholder the Public Investment Corporation (PIC), represent total assets under management of more than R3.6 trillion.

This letter steps up the heat, following intense private communication between the firms and their clients and between the firms and Naspers/Prosus, as reported by Daily Maverick here and here.

The issue concerns the fact that both Naspers and Prosus continue to trade at a discount to their underlying net asset value. In a bid to reduce this last year Prosus announced a large buyback program of both Prosus and Naspers stock.

More recently, in May, the firms proposed a complex share swop transaction whereby Prosus will acquire Naspers shares from shareholders using newly issued Prosus shares. Shareholders can voluntarily switch their holdings to Prosus shares at a ratio of 2.27443 Prosus shares for each Naspers share.

At the end of it all, Naspers’ shareholders will still own as much of Prosus as before, but Prosus itself will also own 49.5% of Naspers.

Despite management’s protestations to the contrary, the deal is complex and unwieldy and shareholders do not believe it will reduce the discount.

On Thursday, management of the two companies, led by CEO Bob van Dijk and CFO Basil Sgourdos, issued an update on the offer in response to the overwhelming criticism.

The update addresses shareholders key concerns that the deal is overly complex and those management incentives are not aligned with those of shareholders. While this may reassure shareholders that they have been heard, it does not suggest that the transaction or management incentives have been or will be altered in any way.

In the meantime, the pandemic has seen the world embrace digital technology at an unprecedented speed and Naspers and its subsidiary companies are reaping the benefits.

Naspers expects earnings per share for the year ended March 31, 2021 to be between 70% and 77%, or 500 cents and 550 cents higher than they were in the previous year. Its earning per share in fiscal 2020 came in at 718 cents.

Core headline earnings, which the group views as an indicator of operating performance as it adjusts for non-operational items, is expected to increase by between 135 and 181 cents per share (between 20.6% and 27.6%). Adjusted for the impact of the listing of Prosus (which sees Naspers recognise 73.19% of earnings compared to 100% in the previous period), is expected to increase, between 41.1% – 47.9%

“While navigating a global pandemic, the group benefited from its diversified operations and executed on many … initiatives that position it for continued long-term growth and value creation,” the firm said in a statement.

Despite the turbulent impact of the pandemic, the group added that the acceleration in digital transformation had supported each one of its sectors – e-commerce, food delivery, payments and fintech and edu-tech.

In addition, the contribution from Tencent continues to grow.

The table below outlines the results expected for the year ended 31 March 2021.