Naspers sells Allegro for $3.2 billion

Check out the release from the horse's mouth: Naspers to sell Allegro Group to Cinven, Permira and Mid Europa. 3.253 billion Dollars is the price tag, or 46.61 billion Rand. Or at the closing price, and by extension market capitalisation on Friday, 4.59 percent. Which is not mind blowing, it is however pretty big in quantum. If that deal size (46.61 billion Rand) was a single business here, listed on the JSE, it would currently fall into 44th place, just smaller than GoldFields and PSG. And is bigger than Kumba and Sappi, by their market capitalisation. The same size as Massmart and EOH put together. Really.

So why did Naspers sell this business? CEO Bob van Dijk says in the release that "Our decision to sell Allegro is consistent with our strategy to find and realise value for our shareholders." I can only guess that Poland is maturing as a market, transitioning towards a fully fledged member of the Eurozone (it is a member of the European Union), growth is not expected to be "huge" in the coming years. Having gone through a tough patch, Poland was about to enter, they stepped back a little. My best guess is inside of the next 5-10 years, let us say by 2023. The country is closer to "convergence", whether the citizens want it or not, that is another question entirely.

I guess the strategy is simple, if growth exists at the pace that you expect it to, then hold or invest in it. If not, then the strategy will be to sell it. Either way, it is a *nice* sum of money. They do still keep businesses in Poland, including OLX and PayU. PayU in fact continues to provide a payment platform to Allegro, in a multi-year agreement, according to the SENS agreement. So they (Naspers) will concentrate on those businesses in that territory. Again, the release explains that with the purchase of Allegro, they were able to leverage that platform to make progress: "Leveraging the Allegro platform, Naspers was able to build fast-growing businesses like OLX.pl and PayU.pl, which are valuable and contributing to enhanced returns." The time frames are long here, the deal is only expected to close in around a year.

Not bad for a company that Mr. Market only owns principally for the TenCent business. Still, according to the estimates, the stock trades on around 40 times forward earnings, with a rather sharp unwind in the coming years. The analyst community is expecting the company to earn somewhere in the region of 105 Rand a share in earnings by March 2019, if the share price stays at these levels, the stock would trade on less than a 22 multiple. You would have to say that the market "has this right", not so?