Hotels flotation signals early Lonrho break-up

The break-up of Lonrho could be complete within three months, well ahead of the schedule set out in June when the demerger was first announced.

The conglomerate announced yesterday it would be selling its Metropole to Princess hotels arm next month and it is understood the planned separation of the remaining mining and African trading operations could follow within weeks.

The double demerger, which will mark the completion of chief executive Dieter Bock's dismemberment of former Lonrho boss Tiny Rowland's fiefdom, was given a significant boost by confirmation of the proposed hotels sale.

Proceeds of a planned international public offering of shares in Princess Metropole Hotels, estimated at between pounds 600m and pounds 800m, will all but wipe out Lonrho's debts, clearing the final hurdle to the subsequent sale of the agriculture, food processing and car distribution businesses.

Lonrho's debts are estimated at pounds 830m, boosted by the pounds 251m acquisition, completed last week, of a minority stake in Metropole Hotels which Tiny Rowland had sold to the Libyan government in 1992. It has not yet been decided exactly how much debt will be transferred to Princess Metropole but it is expected to be given a strong capital base to fund its development plans after the flotation.

Current Lonrho shareholders are expected to be given priority on applications for a proportion of Princess Metropole's shares. They will not, however, be offered a discount. All shares are to be issued at one price for all investors.

Following the demerger, the group will be headed by chief executive Martin Bolland who joined Lonrho in 1981 as a head office accountant. Between 1983 and 1985 he ran Princess Hotels in New York and then moved to Metropole where he was managing director.

Peter Harper, a non-executive of Lonrho since 1993 and currently director of parliamentary affairs at Hanson, is to be the company's non-executive chairman.

The second demerger will trigger the placing of Dieter Bock's 18.5 per cent stake in Lonrho to the Anglo-American Corporation of South Africa, which would then become the largest shareholder, and effective parent, of the rump Lonrho mining business. Analysts expect Lonrho, which controls some of the world's richest gold and platinum mines, will ultimately be bid for by Anglo.

Mr Bock plans to use the proceeds of selling his Lonrho stake, worth pounds 240m at the current share price, to pay off personal debts and to invest enough in the African trading business, which he will head up, to take a stake of between 20 and 25 per cent.

A prospectus for the sale of the hotels business, which includes 5 Metropole conference hotels in the UK and 10 luxury resorts in the US, Mexico and the Caribbean, is due to be issued in the first week of September followed by a book building operation and first dealings towards the end of the month.

News of the offer sent Lonrho's shares 3p higher yesterday at 171p, reversing a steady decline this year from a high of 217p in February. As with Hanson, which is also in the throes of breaking itself up, the announcement of the demerger, which is designed to enhance shareholder value, has actually been taken badly by the market and the company is trading at a substantial discount to some estimates of its break-up value.

Analysts believe, however, that the timing of the hotels sale is astute, in the middle of the most buoyant period for the industry since it emerged from the slump in international travel in the wake of the Gulf War. The sector has attracted plenty of stockmarket interest this year, with the take-over of Forte by Granada and the flotations of Macdonald Hotels, Millennium & Copthorne and Jarvis.

Princess Metropole has a good trading record, with operating profits in the past two years growing from pounds 17m to pounds 42m. Analysts believe it provides an unusual exposure to specialist niches, such as the profitable conference market, a good geographical spread and a significant potential to expand its existing hotels.

Lonrho plans to hold on to its African hotels, which include safari lodges in Kenya and beach hotels in Mauritius. Princess Metropole will, however, have an arms length contract to manage the hotels.

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