`Tiny' Rowland's Colossal Woes

Never mind the moralizing. If there's a deal to be done, chances are Roland W. "Tiny" Rowland will hop in his Gulfstream jet in search of the action. Over the past 10 weeks, the chief executive of Lonrho PLC, the London-based industrial conglomerate, secretly took a few jaunts to Tripoli. In late March, just days before the U.N. voted to impose sanctions on the government of Colonel Muammer Qadaffi, came the payoff: Debt-laden and recession-battered Lonrho announced it was selling a one-third stake in its Metropole hotel chain to Libya's foreign-investment arm for $310 million.

The venture boldly underlines a new era for Lonrho, the British holding company whose assets--including natural resources, newspapers, tea and sugar plantations, and car dealerships--generated 1991 revenues of $8.4 billion. Rowland, once the grand acquisitor, now appears to be dismantling his company. The Metropole deal means that Lonrho will have raised $608 million through asset sales since the Sept. 30 close of the company's 1991 fiscal year.

IN THE DARK. More deals are in the works. Company executives won't rule out any Lonrho assets, from its famous London Sunday paper, The Observer, to its Princess hotel chain, to its promising platinum and rhodium mines in South Africa--even though South Africa may be on the verge of a business boom.

The Libyan deal stunned even those bankers and investors who are pressing Rowland to unload assets. Lonrho shares have sunk 31% since the deal was announced, and 60% from their peak this year (chart). But the dealing will go on. Banks want a sharp cut in Lonrho's debt, now about 60% of total capital. Comments one banker: "We're no longer willing to give Rowland the benefit of the doubt. He needs to lay out a coherent strategy to get over this crisis of confidence."

The fallout shows little sign of abating. On Mar. 31, Lonrho lost its London stockbroker. UBS Phillips & Drew resigned the Lonrho account, say sources in the City, because the company kept it in the dark about many financial matters, including the Libyan deal. And the U.S. Treasury is investigating the stock sale to determine whether the deal makes Metropole a Libyan-controlled company subject to U.S. sanctions. If so, by midyear, Americans could be forbidden to do any business with Metropole--or even to stay at its hotels.

The consequences could be much worse if the Treasury decides that Libyan control extends to Lonrho: The Administration could freeze its U.S. assets, including Hondo Oil & Gas Co., and block American shareholders from selling their Lonrho stock. That could cause problems for Boston-based Fidelity Investments, which could be stuck with 10% of Lonrho's shares if it doesn't sell before the freeze.

Lonrho Deputy Chairman Paul G. B. Spicer defiantly predicts that the storm will blow over. "Some say we should have been more careful about who we are dealing with, but we've got to think about getting the best deal for our shareholders," he says. "We've done nothing illegal." And Rowland himself, says one old friend, remains serene. "He has an amazing way of rationalizing the difficulties," says the friend.

BRAVE SOULS. Rowland has had a harder time rationalizing the recessions in the U.S. and Europe, which have battered cash-spinning businesses such as Lonrho's auto dealers. Meanwhile, the African operations are buckling under the weight of economic crises and weak commodity prices. Pretax profits slid 24% last year, and Jack Jones, a UBS Phillips & Drew analyst, forecasts an additional 40% deterioration this year, on a 6% dip in revenues, to $7.9 billion.

Spicer nonetheless insists that Lonrho can smoothly sell assets and transform itself once again into a major natural-resources play. But an earnings turnaround would require a worldwide rebound in mineral and commodity prices.

To a few brave souls, Lonrho's woes are a great opportunity. Analyst Robert Davies of Lehman Brothers International, who met recently with Rowland, says: "I'm convinced the company isn't going bust, so the stock is desperately cheap." And Geoffrey Rosenberger, managing director of Clover Capital Management Inc. in Syracuse, N.Y., says he bought 7 million shares in the past month. He's uncomfortable, he says, "but I only make money on stocks when my stomach turns over." If he sticks with Tiny, he'll be popping antacids by the fistful.

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