Lonrho-LonZim Controversy Brewing

Regular readers of Controlled Greed know that yours truly has been intrigued by the idea of an African-wide play. The reason is because Africa has been growing nicely over the recent years, and might be a smart play on emerging market growth with Mainland China and India getting all the press. (This was before the global financial crisis.)

Lonrho is a company I've been keeping an eye on -- and money out of.

While Lonrho is a "conglomerate" investing across several countries and industries on the "African Continent," it also qualifies as a micro-cap outfit. As a result, there's very little coverage of the company, both in the press and among analysts.

Then, with the current market meltdown, you don't have to endure the risks of putting your money in Africa when plenty of outstanding companies are available at cheap prices. (At least that's what I hope the case with Microsoft and Cheung Kong Holdings.)

Thursday the news broke in London that Lonrho's investment arm LonZim (which invests in Zimbabwe) had bought Lonrho's stock without telling anyone:

LonZim spent almost £3 million buying nearly 60 million shares in Lonrho, with which it shares most of its directors, over a three-month period, including participating in a private placing in November, but failed to disclose the purchases as a related-party transaction. The company also failed to inform Collins Stewart, its nominated adviser, which is understood to have now moved to sever all ties with both LonZim and Lonrho, after what is believed to have been a rocky relationship.

David Lenigas, who chairs both companies, last night denied any wrongdoing by the AIM-listed groups and said that he was already in discussions with a number of parties interested in becoming LonZim’s new adviser, with a view to relisting as soon as possible. LonZim suspended its shares at 31p while it reviews the transaction.

Lonrho trades in London under symbol LONR. LonZim had been trading under symbol LZM.

Comments

[El Toro]

Hey Greed love the blog - I think it's one of the best value blogs out there. While Africa is growing well and will almost certainly command a larger share of the global economy in the future, I think many African countries - Ghana, South Africa, Eygpt, Niger, Morocco are very overvalued right now based on P/E and P/BV ratios.

[John]

El Toro: Thanks for the praise and for the info. I'll do my best to make this blog worthy of your continued readership!

[Steady buy]

A greedy time for all! It looks like Lonrho directors have been running a secret shareprice support scheme, including filling placements which would probably have been under-subscribed. With the non-disclosure (even to their own advisors) this represents a number of regulatory breaches in just about any exchange in the world. But it is not anywhere in the world, it is in London and it is on AIM, which to my knowledge is still part of LSX. When you start to look at the recent transactions in other Lenigas companies, one wonders if this the tip of the iceberg? Lots of greed, not a lot of control!

[CONTROLLED GREED.com]

Steady: Well, if it was a secret shareprice support scheme it wasn't doing very well, considering the dreadful performance of the share prices over the past year. Will be interesting to see how this plays out, that's for sure.

[Jean-Charles]

Interesting news indeed to discover the investment of LonZim in its mother company.

I just been through Lonrho's website and found out that the Annual Report for 2008 (as of the end of August 2008) is not yet published!!

Are there bad news to be published?

Also, there is nothing about the liquidation of SAILS. No news and no comments on the convocation to the AGM of december. Strange when the loss should be consequent.

Another anomaly is the ridiculous price of the private placement. 4 p for a transaction which represents 40% of enlarged capital is a non sens for existing shareholders.

Late Tiny Rowland had a sulfurous reputation but built a great Lonrho. Current Chairman is pale in comparison for the later but in good position for the former.

[John]

Jean-Charles: I'm not sure when Lonrho is supposed to release its annual report -- sometime this month? (March)

It's a very small company, with virtually no analyst coverage, so it is hard to find third-party analysis. And it will be very interesting to see the annual report, when it is finally released.