Inside Lonrho today
Published by Forbes on 1988-03-21
IN LONDON FINANCIAL CIRCLES, talk is of the future. "One keeps hearing a lot about 'After Tiny, what?'" says Kitcat & Aitken's Robert Carpenter, "and, 'After Tiny, who?'"
"Tiny" is Roland Walter Rowland. He is called Tiny because he is anything but -- even at 70 he stands a fit and energetic six feet two inches. The succession question is of some importance because Lonrho Plc., the $ 5 billion (revenues) conglomerate Rowland built practically from scratch, appears to be substantially undervalued in the London stock market. Indeed, Mutual Shares' Michael Price has accumulated 26 million shares, or 6.93%, of Lonrho's stock. That makes the New York-based mutual fund Lonrho's biggest shareholder after Tiny Rowland. Mutual Shares Vice President Philippe Brugere-Trelat, who watches over the fund's Lonrho holding, insists Lonrho is worth #5.50 a share, as against its recent London Stock Exchange price of #2.58.
Would shareholders be best served were Tiny Rowland to step aside and let the asset strippers carve up the pie -- or, better yet, carve it up himself? Probably. But Tiny Rowland has no intention of stepping aside or carving up Lonrho. "Lonrho is my entire life," says Rowland. "If I had to do things all over again, I wouldn't change a day -- not a single day."
Against the standard of, say, Occidental Petroleum's Armand Hammer, Tiny Rowland is still a young man. Lonrho regulations stipulate that when directors reach 70, an age that Rowland reached on Nov. 27, their continued tenure must be approved by shareholders. At the company's annual meeting on Mar. 25 Lonrho's 52,000 shareholders will vote on that requirement as it applies to Rowland. Approval is expected.
It is not hard to see why the stock market finds Lonrho a difficult creature to value properly. "I've been a jack-of-all-trades," says Rowland, and the company bears him out.
Today Lonrho is one of the world's biggest distributors of automobiles. In Britain, Europe and Africa, Lonrho sells Rolls-Royces, Volkswagens, Audis, Mercedes, and also French, Japanese and American cars. The company is the third-biggest producer of platinum (it owns 100% of Western Platinum mines in South Africa, which turn out 258,000 ounces annually). It is a major producer of gold in Ghana and in Zimbabwe; total production is about 442,000 ounces a year. Lonrho publishes one of Britain's largest Sunday newspapers, The Observer, and 23 provincial newspapers in the U.K. Lonrho is also the largest single producer of food in Africa, owning 1.5 million acres and 125,000 cattle in ten countries.
In the U.S., Rowland paid $ 173 million in 1986 for oil and gas properties -- including 600 producing fields -- in partnership with his old friend Robert O. Anderson, former Arco chairman. The two men co-own the Hondo Co., and hope to build a natural gas pipeline through Alaska. Also in the U.S., Rowland bought, for some $ 200 million, tycoon Daniel K. Ludwig's Princess Hotel Group between 1979 and 1981. The newest unit of this resort-hotel chain -- which has some 4,000 rooms - was inaugurated last month in Scottsdale, Ariz.
Add up all the bits and pieces, and you have a group consisting of 800 operating entities doing business in 84 countries on four continents -- although Africa is by far the most important contributor to Lonrho's earnings (see chart, p. 102).
Books have been written about Rowland and Lonrho. Their histories are fairly well known but bear some retelling. He was born Roland Walter Fuhrhop, In India. His father was German, his mother British. As a young entrepreneur after World War II, Rowland produced refrigerators, car radios and washing machines and started an air cargo business.
In 1948 Rowland moved to what was then southern Rhodesia and is now Zimbabwe. By 1961, he had become wealthy through farming, distributing Mercedes cars, mining interests and a well-paid job as finance and commercial director with what is now one of the world's largest mining companies, Rio-Tinto Zinc. In 1961, when he was 44, he was recruited to the London & Rhodesia Mining & Land Co. by the company's then director, the Honorable Angus Ogilvy, who later married Queen Elizabeth's cousin, Princess Alexandra.
In exchange for some African assets, Rowland was given a 48% share in Lonrho -- hardly a fortune. Founded in 1909, the concern had fewer than 200 workers, including 6 in London. Annual sales were #4 million ($ 11 million at the 1961 exchange rate of $ 2.80 to #1) and market capitalization was #232,000 ($ 650,000).
In 1987 Lonrho employed 124,000 people worldwide and earned a record $ 328.7 million, pretax, on sales of $ 4.9 billion. The stock has been strong, and Rowland's 15.25% of Lonrho is worth some $ 262 million.
When he took over, Rowland quickly set about expanding Lonrho's interests not only in Zimbabwe but also north of the Limpopo River, in neighboring Malawi, Zambia, Kenya, Zaire and Tanzania. In the process he made lasting personal and political friendships with men who became Africa's leaders: Presidents Kamuzu Hasting Banda of Malawi, Kenneth Kaunda of Zambia, Daniel arap Moi of Kenya and Mobutu Sese Seko of Zaire.
Last year 18% of Lonrho's revenues and some 49% of its pertax earnings came from Africa. Business aside, Rowland says: "I have a deep and abiding love for Africa."
In 1961 he obtained the lucrative Beira oil pipeline linking landlocked Rhodesia to what was then the Portuguese colony of Mozambique. When Rhodesia's Ian Smith announced his Unilateral Declaration of Independence in 1965, Rowland shut down the Beira pipeline, in compliance with British sanctions.
In the early 1970s, in the midst of efforts by some Lonrho insiders to oust Rowland, the British government launched an investigation into charges that, among other things, Lonrho was violating the Rhodesian sanctions. In 1973 the government issued a 600-page report that essentially cleared Rowland of the sanctions-busting charges. The investigators did, however, find that some questionable (but not illegal) payments had been made, including payments made by Lonrho to the Cayman Islands account of its then chairman, Lord Duncan-Sandys, Winston Churchill's late son-in-law. Thus was inspired then Prime Minister Edward Heath's famous characterization of Lonrho as "the unpleasant and unacceptable face of capitalism."
Counters Zambia's President Kaunda to FORBES, "Tiny Rowland is a capitalist with a human face."
In 1976 Rowland launched his own attack on the country's establishment when he charged that British Petroleum, half-owned at the time by the government, and Shell had broken the Rhodesian sanctions. A nasty, if inconclusive, fight between Rowland and Britain's Foreign Office ensued.
Now Rowland is involved in another battle, this one against Mohamed Al-Fayed, the wily Egyptian who snatched House of Fraser from Lonrho's grasp in 1985 (see FORBES, Mar. 7). "Lonrho is worth zero," says Al-Fayed of the company in which he once owned an 11% stake and on whose board he sat in the early 1970s. "The assets," he adds, "are entirely fictitious." (P. J. Butler, senior partner of Peat Marwick McClintock, Lonrho's auditors, replies that in 14 years of dealing with Rowland he's never had problems with company accounts.)
Some Lonrho watchers argue that Rowland's sparring with Al-Fayed has diverted its chief executive's attention and done Lonrho no good. "This fight [with Al-Fayed] makes Lonrho look like yesterday's company run by yesterday's men fighting yesterday's battle," says Kitcat & Aitken's Robert Carpenter. "The real question now is whether Tiny and Lonrho will be able to put this fight behind them."
In fact, Rowland seems to be turning his energies back into expanding Lonrho. After disposing of eight London casinos in June and raising $ 86 million from a Tokyo Exchange equity issue in July, Lonrho has some $ 514 million in cash. Rowland is deploying the cash in Eastern Europe, the Far East, the Mideast and the U.S.
In June a new trading concern called Lonrho-Japan will be launched in Japan to export Japanese goods around the world through Lonrho contacts. This could put him into competition with his partner in the Far East, Japan's Nissho Iwai Corp. Lonrho is also negotiating to buy an international oil company.
Lonrho recently proposed the purchase of 50% of West Germany's Krupp, Handel GmbH -- the trading arm of the giant Fried. Krupp GmbH empire in steel, defense, electronics and engineering. This deal would at once give Rowland access to business opportunities in the U.S.S.R., Rumania, Hungary -- and, importantly, Iran. Rowland believes that 1988 will see a ceasefire between Iran and Iraq. Lonrho's involvement with the Krupp group (in which the Iranian government has a long-standing 25.01% holding) should give it a strong foothold in that country.
"Two years from now, I expect to have a total turnover of $ 10 billion," Rowland says.
With its considerable assets, Lonrho has considerable, though declining, debt: $ 1 billion in long-term debt and $ 225 million in short-term debt, or $ 1 of debt (net of cash) for every $ 2.30 of shareholders' equity and minority interests. Lonrho's worth? Roland: not less than $ 4.5 billion, about three times its current market price. Lonrho estimates that U.S. assets alone -- the Princess hotels, oil and gas holding and 600,000 acres of ranchland in New Mexico -- are worth some $ 1.71 billion.
But don't count on anyone whose last name isn't Rowland coming along and unlocking Lonrho's true value, whatever it is. "The only person who'd really be able to take over Lonrho would be me," says Rowland, somewhat wistfully. "If only I were ten years younger, I'd make an offer for Lonrho myself, perhaps in partnership with Bob Anderson. I'd want to privatize Lonrho." If a hostile party persisted, Rowland adds, "we'd then suggest to our shareholders that we, the directors, would break up the company ourselves and get shareholders a better price."
But Rowland doesn't expect that to happen. "I plan to be around," he says, "for a long time."
The Lonrho picture
Reflecting its history, Lonrho still makes most of its money in the U.K. and Africa. Tiny Rowland's moves into the U.S. and the Far East may change the picture.
Senior Writer and Global-Affairs Columnist