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Madeleine Wackernagel : Taking Stock
As analysts and the markets fte the Gencor-Gold Fields creation of Goldco, the directors of JCI and Lonrho must be feeling increasingly left out in the cold. Not only did their plans for closer relations meet with a very muted response, but now speculation is growing that the Duiker- Tavistock merger is looking doubtful, calling the whole JCI-Lonrho deal into question.
A month after the R1,7-billion transaction was announced, Lonrho directors are coming under increasing pressure – and not just from that old war-horse Tiny Rowland – to rethink their strategy. Or at least devise a coherent one that avoids paying a hefty R500-million premium for Tavistock.
Rowland is due to deliver another broadside at the directors of Lonrho – and by implication JCI – soon. He has been besieged by small shareholders, who, seeing their life savings steadily depleted, are understandably concerned about their dividend payments and the board’s direction.
Investor sentiment in the City of London has also turned sour. Questions are being asked about the Princess Hotels sale, still in abeyance, and the potential for unlocking shareholder value with very few assets left in the stable. Merging Duiker with Tavistock makes no sense either, in the short term, except to help finance JCI’s purchase of a 26,8% stake in Lonrho. While the long-term synergies of the deal could be justified, Lonrho can ill afford the immediate cash crunch.
Indeed, Lonrho’s share price picked up marginally this week on the growing speculation that the deal would not go ahead. Welcome news, considering how the stock has languished while the FT-SE index has powered ahead.
Due diligence reports on Tavistock were due by the end of last month — we’re still waiting. Which invites the question: is Lonrho on the verge of backing down? Certainly, talk is rife of boardroom rifts and institutional unhappiness.
Such a move would leave the way open for Gold Fields to better its original R1,5- billion offer, something it was prepared to do last time around, but it got short shrift from JCI. This time, JCI would not get off so lightly; the market would insist on an explanation.
This is a window of opportunity neither can afford to ignore: JCI saves face and gets the cash, albeit less than Lonrho was prepared to offer but still generous considering its true market value is nearer to R1,2-billion, and Gold Fields, reinvigorated after the Gencor deal and with plenty of cash in the bank, boosts its coal operations.
Unless, of course, the whole bid was cooked up in the first place to serve JCI’s purpose only. In which case, shareholders have a right to know. In the week of the second annual corporate governance awards, when transparency was very much the watchword, the ironies are telling.