Lonrho's bitter battle to retain the heart of its African empire

AMB, which owns a large number of shares in the offshoot LonZim, is seeking to oust the board. The showdown is set for the EGM at the end of July. Mark Leftly reports on the protagonists

Dave Lenigas polishes off his breakfast of two small packets of cereal, as the English summer rain tip-taps against the windows of the Mayfair Hotel in London.

The big Australian leans back slightly, and then, in the macho manner that gives away his background in the testosterone-fuelled mining industry, announces: "I don't mean to sound cocky. But we are Lonrho. We have been in Africa for 100 years. If anyone gets in our way, we have no choice but to stomp on their heads."

Perhaps realising that he does indeed sound a little cocky, Lenigas, grinning away, adds: "If we do something wrong, then fine, line us up against a wall and throw rocks at us. Don't you love my Australianisms?"

Head-stomping and rock-throwing are just about the only twists that haven't occurred in a rather extraordinary saga being played out on the Alternative Investment Market (AIM), the junior stock exchange.

Rebel shareholders, the Zimbabwean Prime Minister Morgan Tsvangirai, the investment legend George Soros, and even golfing superstar Tiger Woods are, wittingly or unwittingly, personalities drawn into a showdown that echoes the great rows of Lonrho's "Tiny" Rowland era.

While this dispute is not the sort that would move a prime minister – in Rowland's time, Edward Heath – to describe events as the "unacceptable face of capitalism", the battle over the future of LonZim, a spin-off of Lonrho, is almost as spectacular.

Rebuilding Zimbabwe

Lenigas, who is, today, executive chairman, took over at Lonrho in 2005. It was no longer the great pan-African conglomerate of the 1960s, 1970s and 1980s. The company was on the verge of selling its last signature asset, a majority share in Mozambique's Hotel Cardoso, for $3m.

Lenigas pulled the sale, and went about creating the latest incarnation of the great business empire. It is now active across Africa in an array of sectors, including building materials, aviation, water technology, and diamond mining, as well as hotels.

As the political situation in Zimbabwe started to improve, the Lonrho board sensed an opportunity to invest ahead of the country's anticipated reconstruction. However, the directors did not want to use the Lonrho brand in the country, so went about setting up LonZim. While Lonrho focused on fairly mature investments, LonZim would be buying assets ahead of an economic recovery.

This was spun off as a separately listed company at the end of 2007. The Aim admission document made clear that the companies were expected to be all but inextricably linked.

The four executive directors would be from Lonrho, holding the same roles. For example, Geoffrey White and Lenigas are respectively chief executive and executive chairman of both companies.

White says: "In the prospectus, we made it clear that LonZim would be using Lonrho's expertise to run the company for a management fee – either $500,000 a year or 2 per cent of funds invested. The directors on the LonZim board receive £1,000 a month, the minimum salary to serve on the board of a plc."

Nearly 30 million shares were placed in the market at 100p a pop, raising £29.16m for investment in Zimbabwe. Lonrho retained a 20 per cent stake.

Rebel alliance

At about the same time, AMB Capital, a South Africa-based investment bank, started building ties in Zimbabwe. Andrew Sprague, the rugby union-loving AMB chief executive, is Zimbabwean.

AMB saw the country's potential, and hankered for a vehicle that could "act as a conduit for investment", says Sprague. If AMB could find such a company, Sprague says there are parties willing to raise up to $30m for a range of investments, including housing, roads and mining infrastructure.

Sprague spied LonZim. He knew there were both negative and positive views of Lonrho which dated from the Tiny Rowland days. Africans considered the company either a force for colonialism or a great investor, but on balance, Sprague felt that Lonrho's name was well regarded in the continent. The LonZim name would help AMB to build a strong business in Zimbabwe.

At the start of this year, the shares, like most stocks in London, had collapsed, in this case to just 15p. Two months later, AMB and Damille Partners IV, an investment vehicle, were introduced and decided to buy up LonZim shares.

AMB took a 20.75 per cent position, while Damille built up a 6.75 per cent stake, the two parties paying an average of 16p a share. It is understood that many of the shares originated from George Soros.

At the end of March, the parties wrote to LonZim's non-executives. They expressed concerns at the group's investment strategy, believing that the LonZim board had overpaid for certain assets, and argued that there were corporate governance issues arising from the company's ties to Lonrho.

The investors also called for an extraordinary general meeting, at which it wanted to vote off the Lonrho-driven board and replace with two AMB directors, including Sprague, and a duo from Damille.

If elected, AMB wants to review every asset on LonZim's books and by the end of 2010 would try to sell any asset that is not expected to generate a 30 per cent return for shareholders. The return is set so high due to the risk of dealing in a politically unstable country.

Lonrho insists that this means AMB wants to wind up the company by the end of 2010, with the rebel shareholder effectively cashing in on a fire sale when they had paid only 16p a share, while other investors would lose out. "AMB's interests are chronically misaligned to other shareholders," White alleges. "Most shareholders bought in at between 40p to £1 a share."

However, Sprague says that at no point has AMB stated that it wants to wind down the company. Rather, it wants to start from scratch, by selling or winding down assets and investing elsewhere in Zimbabwe. "We never said that we would liquidate the company. We just don't like the assets," argues Sprague.

AMB is understood to be planning a stock exchange announcement tomorrow detailing this position.

Tiger hunting

The most public dispute has been over LonZim's $8.5m purchase of the five star Leopard Rock Hotel, 220km south-east of Harare. Sprague argues that this does not meet his 30 per cent return criteria: "You'd be lucky to get your capital back if you sold it."

AMB values the hotel at about $4m, while Lenigas says that his advisers estimated that LonZim had snapped up the hotel at half-price. LonZim also plans to refurbish the hotel at a cost of $1.7m and expand by 100 rooms.

Lenigas says that when this is completed, the Professional Golfers Association has indicated that it will hold tournaments at the adjacent course. Clearly, LonZim has images of Padraig Harrington taking on Tiger Woods at the venue.

At a breakfast promoting Zimbabwe at a Big Four accountant's London base last month, White introduced himself to Prime Minister Tsvangirai, mentioning the purchase. "He said that tourism would be the sector that would develop fastest in Zimbabwe, and the government has since announced that hotel modernisation will be duty free," says White.

But AMB is also concerned that Lonrho Hotels has been selected to oversee the refurbishment and operations of Leopard Rock. The LonZim board maintains this was a fair, independent selection process, while AMB believes it is an example that the company is compromised by its Lonrho links.

Should Sprague and Christopher Vosloo, AMB's executive director, succeed in gaining places on the board, they will review Lonrho's overall management agreement with LonZim to check if it is legally binding.

Showdown

The EGM is to be held at 3pm on 30 July. But this will not be a simple vote to replace one board with another.

The situation has been muddied by Damille's decision last month to sell most of its stake. The Damille board nominees, Brett Miller and Rhys Davies, have withdrawn, although they are still formally on the ticket.

The decision to sell up has angered AMB. Sprague says lawyers are reviewing an alleged agreement between the two that Damille would not sell up until after the EGM. Miller counters: "There was no agreement between Damille and AMB about not selling any shares prior to an EGM or at any time. Damille is purely a financial investor, and the share value had increased by over 100 per cent on what the shares had cost Damille."

Despite the tension between the former allies, Miller says that Damille will use its remaining shares to vote for AMB.

Sprague is looking to enhance his position by arguing that Lonrho, now with nearly 25 per cent of the company, cannot vote on a resolution to change LonZim's investment strategy. This is because any change would impinge on the Lonrho's chances of earning a management fee. White says that he has obtained a legal opinion dismissing this argument.

Should Sprague and Vosloo win the election, they would have to work with two of their rivals from Lonrho. Difficult, given that White would ultimately like to merge LonZim with Lonrho. The relationship would also be particularly tempestuous now that Lenigas and White have issued defamation proceedings against Sprague in relation to comments made to a South African journal.

And Lenigas won't back down on the defamation suit, no matter the outcome of the vote. "We take what he's said very seriously, as it could harm Lonrho's dealings with African governments and investors.

"Geoff and I are merely the custodians and guardians of Lonrho, and we need to protect it."

Tiny Rowland would be proud of those words. And he would be all too familiar with the effects of a bitter, very public dispute.