Tiny Rowland is not the only critic to raise questions about the companies closer links, writes Madeleine Wackernagel
The news that JCIs Tavistock coal interests would go to Lonrho came as no surprise once the Gold Fields offer had been turned down. But analysts agree the price and timing were off-beam, especially as the coal division proved to be the only significant income generator in the JCI stable for the 1996/97 financial year.
The Gold Fields offer of R1,5-billion was considered generous when a valuation in the region of R1-billion to R1,2-billion was deemed realistic. But the R1,7-billion put on the table by Lonrho is regarded as way too high and raises questions over Lonrhos motivation.
Tiny Rowland, the former head of Lonrho and still a major shareholder, caused a few ripples last week with advertisements in the British and South African press denouncing the prospective deal. Lonrho, he claimed, would in effect be paying for a merger that gave JCI control over the group.
A representative of Rowland this week said the deal was being rushed through before the companys financial year-end this month to deflect attention from its poor operating performance.
Lonrho is paying over the odds for Tavistock and far from unlocking shareholder value for all its investors, it has in effect given that premium of R700- million or 11p to 12p a share to only one JCI.
The company is under pressure to bolster its year-end results, so it is putting together all sorts of deals before September 30.
But where are they going to find the cash? The Princess Hotels sale was stalled again this week, and now by announcing the Tavistock buy, they have made it all too obvious that they are desperate for cash. That just gives the buyer ample leverage to hold out for a lower price. It doesnt make good business sense.
A similar criticism was levelled at Mzi Khumalos strategy at JCI. Said one analyst: The new management started off by saying they were going to be a gold-focused group, then that the group would be restructured into a gold division and a diversified commodities side. But now theyre selling coal, so where does that leave them?
The lack of clarity over the JCI shareholding structure is adding to analysts concerns and fuelling speculation that Anglo American is still in the driving seat. News that Anglos Julian Ogilvie Thompson and Lonrhos Nick Morrell and Sir John Craven went grouse hunting in Scotland together last week did nothing to quell the talk.
Neither company is in a strong financial position, as this weeks results from JCI showed. Due to a change in the companys accounting formula, to bring it into line with international practice, headline earnings per share were down 27% on last time, but under the old system earnings are 8% lower.
Interestingly, the only good performance came from the coal division income was up from R101-million last time to R127- million. Gold income fell from R154-million last year to R127-million, while chrome was down from R88-million to R18-million. At the same time as announcing its annual results, the group revealed its restructuring plans.
It will operate two companies, one gold focused, the other a multi-commodity-based metals arm. Separate listings may be considered in the future.
For Lonrho, the market had predicted a 30% drop in operating results for the 1996/97 financial year but in the light of the strong pound in recent months, earnings are now expected to come in even lower.
Lonrho, says an analyst, is as dead as a dodo. It no longer has the potential to be a strong player in Africa; it has sold off its biggest commodity assets and the new management style doesnt go down well with African leaders. And there isnt the necessary shareholder base to fight for a new direction.
The perception now is that a JCI-Lonrho merger is not on the cards; instead, JCI will use its 26,8% stake to change the groups focus and management. Lonrho still holds one trump card a 25% shareholding in Ghanas jewel, the Ashanti gold mine. It is no secret that Anglo covets that asset but its attempts to win control have so far been thwarted.
But as another analyst said: Anglo has plenty of time. They can afford to take a long-term view. And while they may not be very popular with the Ghanaian government now, a new regime in the future may be more amenable.
There can be no doubt, though, that JCI is their vehicle in realising this ambition.
Anglo strongly refutes such talk but its continued representation on the JCI board may yet cause problems with the European Union, which has still to consider the validity of the Lonrho share option deal with JCI. A ruling is not expected before the option is exercised in December.
This week, JCI announced the swap of its 2,9% stake in Amplats for 5,2% of Lonrho from Anglo. With only three months to go before it has to raise the cash for the remaining 21,6%, JCI will have to do a lot of fancy footwork to convince the market it is on the right track.