View from City Road: Rights for the wrong reasons

NOTHING will become Roland 'Tiny' Rowland so much as the leaving of Lonrho. As if there were not already good enough reason for persuading him to leave, yesterday's rights issue makes it imperative for him to go at once. The terms of the rights issue are unacceptable. True to form, they show disregard for other shareholders while exhibiting extraordinary generosity to Mr Rowland. Shareholders should reject the deal because of the premium being offered to their chief executive.

The best justification he could come up with was: 'I do not believe that there is any unfair advantage, since neither my company nor I has ever dealt in Lonrho's shares other than to buy them.' Will Dieter Bock, who stands to own as much as 25 per cent of the company, pay the same premium to other shareholders who have not dealt in the shares but only bought them?

The fact that Gencor and Genting also offered premiums for his stake does not affect the argument. The terms breach a fundamental principle of corporate control in Britain, that all shareholders must be treated in the same way. Allowing Mr Rowland and Mr Bock to ride a coach and horses through that is tantamount to tearing up the rulebook.

It is not as if Mr Rowland has any title to special treatment. He is now 75 and it is high time he handed over the reins to someone younger, able to introduce a new strategy and who is more aware of the duty owed to outside shareholders.

Mr Rowland has overseen a sad decline in Lonrho's fortunes, reflected in the share price. This has underperformed the stock market by 60 per cent this year, leaving the company worth only pounds 500m before yesterday's deal was announced.

Despite Mr Rowland's assurances to other shareholders - 'as friends' - that the rights issue is in the interests of the company, they should let this opportunity to pour further sums into Lonrho pass. There is little attraction in paying over the market price for the new shares. As most rights issues are pitched at a discount, shareholders should ask what is so special in this case. They might also like more details on the offers Mr Rowland has rejected.

Too many uncertainties surround this deal. There is no confidence that the company will raise the pounds 181m, as only half is underwritten. There is is no confidence that Mr Rowland will hand over the reins. There is no confidence that Mr Bock is the right man to turn the company round.

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