Big game hunters stalk Lonrho Africa

A master predator is on the prowl, but the plantations-to-property group is determined not to give in without a fight, writes Marc Lopatin
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The Independent Online
ONE WONDERS what Tiny Rowland would have made of the power struggle for Lonrho Africa, the group recently demerged from the mining conglomerate that the late entrepreneur spent his life piecing together.

Rowland would probably have heartily approved of the predatory instincts of Miles Morland, head of the investment fund, Blakeney Management, which is trying to wrest control from Lonrho Africa's board of directors. But whereas Rowland was famous for his legendary intimidation of business rivals, Mr Morland's more measured approach has worked well in the unstable confines of Africa - even winning over the likes of the global financier, George Soros. And with friends like him, it surely won't be long before Lonrho Africa succumbs.

Of course, the board is not going to go without a fight. But if the Lonrho Africa directors are going to survive, they will first have to placate disgruntled shareholders at an extraordinary general meeting demanded by Blakeney (Lonrho Africa's largest shareholder) last week.

Bernard Asher, Lonrho Africa's chairman, is unlikely to relish the opportunity of explaining to shareholders why their investments have halved in value since the group was demerged in April. In the space of five months, the share price has tumbled from 94p to 46p.

Analysts are now busy slashing profit forecasts ahead of January when the company reports its finals.

The hotch-potch mixture of plantations, hotels, motors, property and even a rhino sanctuary, clearly is not performing. A profits warning was issued two weeks ago, signalling the start of a struggle for control of the company, listed in both London and Johannesburg.

Blakeney, which has a 10 per cent stake in the company, originally wanted to replace three non-executive directors with four directors of its own choosing. The board of Lonrho Africa refused outright.

Mr Asher swiftly wrote to shareholders accusing Blakeney of trying to take over the company without paying shareholders a premium. Or in other words: if you want to take control, then bid for it.

Mr Morland has no intention of mounting an all-out bid. After speaking to several major shareholders, Blakeney issued a statement last week demanding that the board calls an EGM. In what is effectively a no-confidence vote in the existing board, Mr Morland will ask shareholders to elect himself and two other non-executives.

Observers agree Lonrho Africa is for the taking. One analyst said the conglomerate looks more like a museum piece than a company ready to exploit emerging markets.

"The power struggle will be the board's last stand. They are road kill on the emerging market superhighway," said another analyst.

According to John Cleemow at Investec Securities, Lonrho Africa's board will find Mr Morland formidable opposition. "Morland has an enviable track record in Africa and is very well connected," he said.

"Blakeney investments have attracted high-profile institutions to a quarter of the world many traditionally ignore. I wouldn't be surprised if he already has buyers for just about every business in the Lonrho Africa portfolio."

Blakeney has already proved it can transform flagging assets in Africa. Last year, the fund seized upon a smaller company called African Lakes with similar holdings to Lonrho Africa. After refinancing the company and granting stakes to a number of investors, including George Soros' Quantum fund, the company has ended years of losses and is now trading at a profit.

But then African Lakes turns over only a fraction of the pounds 554.6m in sales that Lonrho Africa generated last year.

Jenny Chamberlain, an analyst at HSBC Securities, said: "Miles Morland is experienced at running investment funds in Africa, but running a company the size of Lonrho Africa with 27,000 staff is a separate challenge altogether."

Mr Morland is likely to manage this by streamlining Lonrho Africa's asset base and unlocking the company's true value. A number of divisions could be sold off to other Blakeney investments in Africa where synergies can be identified.

The board of Lonrho Africa has attacked Mr Morland for not being specific about his plans for the company. Mark Newman, chief executive of Lonrho Africa, said: "Blakeney's total lack of vision is there for all to see. It will not wash to say that they cannot be specific until they have their hands on the business."

This clearly antagonises Mr Morland. "It's a bit rich of them asking what we are about," he says. "In the six months they have run the company, I still don't know what it stands for, nor for that matter, where it is going. The EGM will let the shareholders decide. It's a choice they have so far never had. The Lonrho Africa board was hand-picked by the parent group before the demerger. They are an unelected dictatorship."

Mr Newman refutes this. "We have restructured the company, selling dozens of businesses which have not met our return criteria. This programme is on-going and we are in negotiations to sell another arm of the business."

Mr Morland believes this is too little, too late. "The only disposals they had committed themselves to at the beginning of the year were pounds 35m of surplus property; as of last week they had realised only pounds 4m from this programme.

"Even if [the board] were to adopt our strategy, the record would suggest that they do not have the ability to carry it out."

Blakeney is already mobilising investor interest. The share price has risen to more than 60p and a number of institutions are quietly buying up Lonrho Africa stock, hoping to profit from Blakeney's intervention.

However, one possible barrier could be Morgan Stanley, which has about a 6 per cent stake in Lonrho Africa. A fund manager, William Lock, is thought to be sympathetic to the existing management, given the difficulties created by the global economic crisis.

But few are betting against Mr Morland winning control one way or another. And when the dust finally settles, there may not be much left of Lonrho Africa to argue about.