Hotel deal paves way for Lonrho split

Dieter Bock made an important breakthrough yesterday in the rebuilding of Lonrho, the former Tiny Rowland fiefdom, buying back a one-third stake in the company's Metropole hotel chain from Muammar Gadaffi's Libyan government. Mr Bock said the $389m (pounds 250m) deal meant that a proposed three-way split of Lonrho later this year, hiving off hotels and African trading operations from the company's mining core, could go ahead.

Mr Bock said a traditional demerger of the three businesses, which would have handed shares to existing Lonrho shareholders, had been shelved because of tax complications in many of the countries in which Lonrho operated. Instead, the hotels and trading operations will be sold off, by the year- end, in public offerings of shares.

Analysts speculated that the deal in effect put Lonrho's mining interests up for sale. Mr Bock said yesterday he planned to sell his 18 per cent stake in Lonrho to Anglo American, the South African mining group, which has an option over the shares.

He will reinvest some of the proceeds in the African trading business and plans to head up the new company.

That would give Anglo, which earlier this year bought a 6 per cent stake in Lonrho from Mr Rowland, the former chairman, a near-25 per cent holding in the rump mining operation, whose biggest asset by far is a shareholding in the separately quoted Ashanti Goldfields.

It acquired the shares, and the option over Mr Bock's holding this year, after a proposed mining merger with Gencor was blocked by the European Commission.

Other senior executives from Lonrho will also transfer to the African trading business after the split, and the company will probably take the Lonrho name, in effect creating a "new Lonrho". The rump Lonrho will have no equity interest in the trading or hotels operations following the transactions.

Lonrho is paying the Libyans $389m for the Metropole stake, removing a poison-pill holding that was widely seen as preventing a planned flotation of the hotels operation.

The price was struck by adding a notional rate of interest to the $307m the Libyans paid for the shares in 1992.

Analysts think the hotels operation, which includes the British Metropole chain as well as the American-based Princess hotels, could be worth up to pounds 800m. The African trading operation has a price tag of about pounds 500m on it, although analysts admit that its collection of agriculture, motor import, property and manufacturing businesses are hard to value accurately.

Mr Bock said he plans to have a stake of between 20 and 25 per cent in the African operations, which might include some or all of Lonrho's African hotels and possibly the Hondo oil and gas business in the US.

He described the African trading company as a unique vehicle for institutions to gain an exposure to the growing economies of Africa. Emerging market funds are expected to be among the new company's largest shareholders.

The hotels operation is expected to benefit from a buoyant hotel market as occupancy and room rates continue to recover from the industry's deep recession in the early 1990s.

Recent hotel company flotations have all moved to early premiums.

News of the proposed changes at Lonrho accompanied interim figures, showing a 15 per cent rise in pre-tax profits from pounds 52m to pounds 60m. Earnings per share increased from 3.2p to 3.7p and a maintained dividend of 2.25p will be paid. Borrowings, which Mr Bock said he hoped the flotations would almost completely remove, were pounds 579m.

Lonrho's share price, which reached a low of 59p after the sale of the Metropole stake in 1992 closed 3p higher at 185p.

Comment, page 17

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