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The managerial heirs to Tiny Rowland have inherited something of his fighting spirit, as they battle to maintain board control of the conglomerate’s newly demerged division, reports Laurie Laird
The late Tiny Rowland was never a man to shy away from a battle – his feud with Mohamed al-Fayed, owner of Harrods, over control of House of Fraser is legendary. That acrimony dated back to the early 1980s and was still simmering at the time of Rowland’s death earlier this year.
Rowland’s heirs at the helm of Lonrho’s newly floated Africa division have inherited the same fighting spirit, locking horns with the likes of George Soros – the fund manager who found notoriety for pocketing more than 5-billion when sterling fell out of Europe’s exchange rate mechanism in 1992.
At stake is Lonrho Africa, a conglomerate covering everything from car dealership to pig-farming and spanning 14 sub-Saharan countries. Among other interests, Lonrho distributes Nissan vehicles in Malawi, runs Safari parks in Kenya and operates cotton gins in Uganda and Zambia. The sprawl of the empire is part of the problem; Lonrho’s detractors – including fund managers linked to Soros – believe the group lacks focus and might be better broken up.
Lonrho Africa came to the market in May at a price of 85p, demerging from the Lonrho conglomerate, now mostly a mining operation. Even then, Rowland had his doubts about the company’s future.
When asked about the suitability of CEO Mark Newman he replied: “If you were to ask me in front of Mark Newman, ‘Do you think he is the man to lead Lonrho Africa?’, I would say never – under no circumstances.”
Rowland even hinted that he might entertain a bid for the company. Since the flotation, Lonrho Africa shares have fallen as low as 42p, although they have recovered slightly since mid-year. The group posted a loss of 3,7-million for the first six months of the year, compared to a 4,8-million profit a year earlier and analysts forecast a loss of nearly 9-million for the full year.
Lonrho is facing an African business climate that makes talk of a Western downturn look positively trivial. Currencies have depreciated by between 40% and 60% through much of East Africa.
“You have a depreciation like that and, presto, that knocks your earnings badly,” said one analyst. The bombing of the United States embassy in Nairobi has slashed the takings at the group’s tourist centres in Kenya, while fighting in the Democratic Republic of Congo has damaged regional confidence.
Those difficulties aside, most observers believe the bulk of Lonrho’s business remains sound. Christopher Hartland-Peel, head of equity research at Standard Bank, United Kingdom, sees Lonrho Africa’s earnings moving into the black next year, forecasting profits of 15-million in 1999 and 23-million the following year.
Currently, the company is worth about 100- million, representing a 60% discount to the book value of its assets, which include some 18-million in cash, says Hartland- Peel. Observers believe that sort of a discount makes Lonrho Africa a trophy for stalkers.
Enter Blackeney management, an emerging market fund manager, which teamed up with UK-listed African Lakes to build a 10,1% stake in Lonrho Africa. Blackeney holds a 23,7% stakes in African Lakes, while Soros funds hold 13% of the UK group. Blackeney and African Lakes have located buyers or investors for 90% of Lonrho’s assets.
As the largest Lonrho Africa share holder, Blackeney has demanded the heads of three of the group’s seven directors, including chair Bernard Asher. Blackeney wants to place its own chair, Miles Morland, on the board, along with Ladbroke chair John Jackson and African Plantations chair Dekel Golan. Blackeney has called an extraordinary general meeting (EGM) for December 10 in an effort to gain shareholder approval for its plans.
The Lonrho Africa board has responded in a manner that would have done Rowland proud. A defiant Asher has termed the move a “blatantly” opportunistic attempt by Blackeney to take control of Lonrho Africa by the back door without paying the shareholders a premium. Certainly Blackeney is sitting on a pretty good investment. “They spent 10-million and could end up controlling a company with nearly 20- million in cash,” said one observer.
Asher says that his predators have been less than truthful about their plans, revealing that Morland recently sent letters to directors stressing that he and his team see themselves as “assets builders, not assets strippers”.
“There are times I think he is related to Hans Christian Anderson,” Asher told reporters.
Asher also believe that Blackeney has little regard for the future of its of its 27 000 employees, accusing Morland of coldly drawing up plans to “close down businesses, without regard to the people … [former Indonesian president] Suharto and Imelda Marcos have nothing to teach him.”
Lonrho has suggested that African Lakes accounts may not adhere to practice, and Lonrho Africa finance director Keith Atkinson raised questions about the manner in which African Lakes accounts for capitalisation of interests and exchange rates losses.
Such allegations amuse Blackeney managers, with partner Joe Demby insisting that the group accounts would have been qualified if regulators had uncovered any irregularities. Still, Blackeney took the step this week of issuing a reaction to the Lonrho Africa defence, noting that it considered bits of the campaign defamatory.
Sources close to the battle are baffled at Lonrho Africa’s emphasis on the role of Soros in the fight. Asher has called Soros an “asset stripper who has no great interest in industrial policy”. But one insider said that being accused of being close to Soros is a bit like being accused of being a homosexual. “The response is, ‘I’m not, but what’s the difference if I am?'”
Not surprisingly, both groups claim to have received support from small shareholders, of which Lonrho Africa has 33 000. But observers say the UK institutional investors which hold up to 25% of the company hold the key to vote. Observers believe there will be more drama before the EGM. “I don’t think Blackeney has fired all its guns yet,” said one.
Whatever the outcome, most observers believe Lonrho Africa will emerge a strong company.