Prosus suffers from the same problem as Manchester City Football Club¹: because everyone knows they have access to huge amounts of capital, they are always at risk of overpaying acquisitions.
It may be an enviable position, but it is still a problem. The Amsterdam-based tech investor said on Wednesday it would reduce its stake in Tencent Holdings from 30.9% to 28.9%. The US $ 15 billion proceeds give Prosus a sizable deal-maker war chest and he can still borrow against his $ 239 billion stake in the Chinese e-commerce giant if he has to. ‘is committed to no longer sell shares for three others. years. But using the money wisely will be difficult.
Prosus CEO Bob van Dijk is on a mission to prove that the company is not a one-ride pony. Its market cap of 154 billion euros (700 billion rand) means that it not only trades at a discount to the value of its stake in Tencent, but investors are rating its myriad of others negatively. investments – it has holdings in at least 45 other companies. Its holdings in Delivery Hero and Mail.Ru Group alone are valued at 8 billion euros on the public markets.
Van Dijk’s capital allocation challenges are in many ways unique to Prosus. Companies like Apple and Google, parent company Alphabet, also have tons of net cash, at $ 84 billion and $ 110 billion respectively. Still, they rarely make significant acquisitions, in part because it’s hard to find value for money when everyone knows you can afford to pay more. Even when doing smaller transactions, the math is different: rather than buying companies, they tend to use technologies that can help existing products.
A recent example is the $ 50 million Apple paid for Vilynx, a startup specializing in artificial intelligence and computer vision technology. They can make this expense worthwhile by incorporating the innovations into a product, the iPhone, which generates annual sales of $ 138 billion. Investors reward this conservative approach to redemptions with generous valuations.
Prosus, however, is essentially a holding company, without a similar portfolio of products that it can easily expand. He must therefore buy companies that generate their own returns. But investors did not like his latest attempt at a major deal: the £ 5.5bn offer for Just Eat in 2019. The share price suffered, widening the discount to the stake. from Tencent, and Prosus ended up making $ 5. billion to shareholders in the form of a buyout.
Van Dijk has not yet done enough to gain investor confidence. Losing a few more bidding processes, and doing it publicly, might actually help demonstrate that he has the necessary discipline. Getting a good deal would be even better. He suggested there was value to be found in education tech and food delivery businesses in emerging markets, but both of these bets are long-term bets that will require the patience of investors, and none will likely require $ 15 billion in investment.
The Dutch executive again has a dilemma. Investors won’t want him to overpay for assets, but if he’s too careful, counterbidders won’t be afraid of his company’s big cash stack. Is it Masayoshi Son, who places extraordinary bets on the future like at Softbank Group, or Warren Buffett, who has built a reputation as a careful guardian of his investors’ money by seeking value? (This caveat also means Berkshire Hathaway, the company he runs, now has $ 335 billion in net cash.)
At the moment, van Dijk is not like either of the two. And until investors know the answer, no financial engineering will close Tencent’s stake discount. – (c) 2021 Bloomberg LP
The Abu Dhabi royal family, owners of Man City, have injected hundreds of millions of dollars into the English football team. Whenever manager Pep Guardiola wants to buy a new player, he can expect to be billed to the max, as other teams know he can access almost endless chasms.
Bob van Dijk’s big challenge: convincing investors of his strategy for Prosus
Source link Bob van Dijk’s big challenge: convincing investors of his strategy for Prosus