Piet Viljoen cheers the end of suddenly departed Naspers CEO, Bob “40% value destroyer” van Dijk

Veteran money manager Piet Viljoen is shedding no tears for how Naspers/Prosus dispatched Bob van Dijk, its CEO of the past decade, who left immediately on Monday morning. Viljoen says he and Van Dijk see the world very differently – and by his calculation, under Van Dijk’s direction, management actions destroyed 40% of the value that would have accrued had they done nothing. In this typically hard-hitting interview, Viljoen discloses that he recently invested in Naspers/Prosus for the first time but won’t buy any more until he is shown interim CEO Ervin Tu is not ‘simply more of the same’. – Alec Hogg

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Relevant timestamps from the interview

00:09 – Introductions
01:06 – Piet Viljoen on whether Ex CEO Bob van Dijk not being on the call is usual
01:40 – Thoughts on the situation
02:41 – Value destruction over 10 years
02:59 – If Naspers had done nothing – shareholders would have been 40% better off today
03:14 – Who must take responsibility for the appointment of the Ex CEO
04:48 – Thoughts on the Interim CEO
05:44 – On the conference call
07:43 – The different styles of the CEO’s
09:20 – How new leadership is likely to change Naspers in SA
10:14 – Not too young, not too old
12:50 – Strategy of the new CEO going forward
13:51 – Reasons for Bob van Dijk exit after 10 years
15:50 – On if he will be buying more shares
19:16 – Conclusions

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Edited transcript of the interview with Piet Viljoen, portfolio manager of the Merchant West Value Fund.

Alec Hogg: In June this year, just before Naspers released its financial results, Piet Viljoen, who manages the Merchant West Value Fund, was highly critical of the management team for allegedly exploiting shareholder resources. Yesterday, Bob van Dyk, the CEO of Naspers, made a contentious exit, which we’ll explore shortly. Piet is here to share his thoughts. I attended the conference call on Monday featuring Koos Bekker and the new CEO, Ervin Tu. Some interesting points were raised. Notably, Bob van Dijk, the CEO until yesterday morning, was absent from the call. Is that usual?

Piet Viljoen: It’s unusual, but in this situation, it was expected due to the suddenness of the change. It was clearly not an amicable departure.

Alec Hogg: Naspers usually has a well-planned succession strategy. Ton Vosloo and Koos Bekker both transitioned from CEO to Chairman, for instance. But with this CEO, who had been in place for ten years, there is no planned successor. What are your thoughts?

Piet Viljoen: I think the controlling shareholders in Naspers have realised that there’s been significant value erosion in the business over the last decade. The responsibility for this usually falls on the CEO, in this case, Bob van Dijk.

Alec Hogg: Can you quantify the value erosion over the last ten years?

Piet Viljoen: It’s difficult to give an exact number, but if we consider that Naspers’ main asset ten years ago was Tencent, and ignoring other venture investments, shareholders would have been approximately 40% better off today had the Tencent asset been maintained.

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Alec Hogg: That’s significant, given that the business is worth hundreds of billions of rands. If Naspers management had done nothing, shareholders would have been far better off. Who should be held responsible for appointing Bob van Dijk, who was highly remunerated during his tenure?

Piet Viljoen: The controlling shareholders should bear the responsibility. They appoint the management, and they too, have suffered due to value erosion under van Dijk’s leadership.

Alec Hogg: Have you met Bob?

Piet Viljoen: No, I haven’t.

Alec Hogg: Do you prefer to analyse these matters from a distance?

Piet Viljoen: I believe the financials speak for themselves. While talking to management can offer insights, the numbers ultimately tell the story. Bob van Dijk has been interviewed frequently, and his views differ significantly from mine.

Alec Hogg: In what ways do your views differ?

Piet Viljoen: Van Dijk comes from a consulting background, which often involves business jargon and growth narratives, but when it comes to generating cash flow — the crux of any business — there’s not much to speak of.

Alec Hogg: What about the new CEO, Ervin Tu? He has an MBA from MIT and seems quite tough.

Piet Viljoen: Given his background at SoftBank, prejudging wouldn’t be fair. But based on what I know so far, it seems more of the same.

Alec Hogg: Did you participate in yesterday’s conference call?

Piet Viljoen: No, I did not.

Alec Hogg: In the call, Koos Bekker took a back seat, allowing Ervin Tu to dominate the conversation. This was different from when Bob van Dijk was around.

Piet Viljoen: That’s interesting. I wasn’t aware of that. Presumably, there were discussions with Ervin before he was appointed interim CEO, and he would have set certain conditions. It’s not healthy if the controlling shareholder and the CEO are in an antagonistic relationship; they should be working in partnership. Considering the significant value loss over the last ten years, it’s understandable that tensions are high within Naspers.

Alec Hogg: Do you think the board is finally listening to critics like you?

Piet Viljoen: I’d be surprised if the board pays much attention to my views, but I do think I reflect broader concerns. One doesn’t need to be an expert to see the value destruction that has occurred. Tencent has outperformed Naspers despite being its main asset. Meanwhile, they’ve sold Tencent shares to invest in ventures that have not been cash-generative.

Alec Hogg: If I’m reading the situation correctly, and this new ex-SoftBank, Goldman Sachs, hard-nosed American CEO focuses more aggressively on the bottom line – the Amercian way in other words – what could happen?

Piet Viljoen: Well, it’s hard to say, because the American way up to now, over the past 15 years, has been fully supportive of money losing venture capital type investments. So I’m not sure what’s going to happen. I do think there will be more of a focus on ‘show me the money’, if I can put it that way. You will definitely get more of that, because I think that’s what shareholders are clamouring for. But we’ll see what happens. I still think that the controlling shareholders of Naspers are looking for their next Moonshot. Tencent is probably the best venture capital investment ever in the world and I think they are still looking for another of those and will continue seeding different businesses to try and get there. But I don’t think what they’ve got at the moment is one of those.

Alec Hogg: So nothing on the horizon that could deliver a very rich strike from what you can see in the portfolio today.

Piet Viljoen: From what I can see, but understanding that I am not a venture capitalist, so I don’t understand that world very well. So it might be there, but I think the odds are against it.

Alec Hogg: We’re South African, and Naspers has a huge hold on the South African media sector, for instance, but it doesn’t make much money here. Do you think, with this tough American running the place, looking for bottom line first, we might see some change in the ownership here?

Piet Viljoen: It’s possible but I think South Africa is so small in Naspers’s life at this point that there’s some bigger fish to fry. There are some really big money losing ventures and I think they’ll probably start there and work their way through. I think they will look at each individual business’s business case and make a judgement call on that. So I wouldn’t be able to say whether they will be for or against anything in South Africa. I think they will evaluate each business on its own merits, as they should.

Alec Hogg: I found a website that had the ages of all the Naspers executives, all 23 of them. And Ervin Tu is the third youngest of those 23 executives at 45, younger even than Bob Von Dijk who’s only 51. Is this a reflection of the way that the world’s going, particularly in technology?

Piet Viljoen: I expected to be that way. I think if you are looking for a chief executive of a business that needs to execute and manage the business properly, you probably want a 40 to a 50 year old. You don’t want somebody who’s too young that it doesn’t have the experience, but you also don’t want somebody who’s old and tired. I think you want somebody that still has a spring in their step and wants to get in and get their hands dirty. The prime age of that is men and women in their 40s.

Alec Hogg: Given the negative perception many have of Bob van Dijk, and considering a different style could impact Naspers positively, I’m considering adding it to the BizNews Model portfolio. What’s your take?

Piet Viljoen: We own shares in Naspers in some of the funds we manage at Merchant West, primarily due to the discount and the strong performance of Tencent. I can’t give advice, but in our portfolio, it’s a reasonable holding.

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Alec Hogg: So you now own some Naspers shares, is this a new development for you?

Piet Viljoen: Yes, we only bought them in the past year when the discount became significantly large.

Alec Hogg: So it’s primarily a discount play for you?

Piet Viljoen: Absolutely. The discount could start narrowing if the new management changes strategy. We’re currently reserving judgment.

Alec Hogg: What do you make of the new interim CEO’s confidence?

Piet Viljoen: It’s too early to tell. A quick decision was made to appoint an interim CEO, and we’ll have to see how things develop.

Alec Hogg: What leads you to believe that Bob van Dijk’s exit happened abruptly?

Piet Viljoen: There was no succession planning in place, which suggests the exit was sudden and potentially contentious.

Alec Hogg: Do you think that the shift in executive power would have rendered him ineffective?

Piet Viljoen: I don’t buy that explanation. I think it’s a narrative they want to sell. The abrupt nature of the change tells a different story.

Alec Hogg: Would you be buying more shares at this point?

Piet Viljoen: Not at this moment. We need to understand the new strategy before making any further investments.

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Alec Hogg: So you’re skeptical about the effectiveness of American versus European leadership styles?

Piet Viljoen: The nationality of the executive doesn’t necessarily dictate effectiveness. Strategy and world-view are what matter.

Alec Hogg: How long will you wait before deciding on further investment?

Piet Viljoen: We’ll wait to see if the interim CEO becomes permanent and what his strategy will be.

Alec Hogg: So for NASPERS, clarity on the CEO position is crucial for investor confidence?

Piet Viljoen: Yes, until that’s resolved, the share price is unlikely to move much. They should take their time in making such a significant decision.