Those of you who follow Lonrho know that in addition to featuring it as an “Idea of the Month” back in 2009, I’ve owned it for my own accounts for quite some time. This is a conglomerate that refashioned itself in 2008-2009 by focusing on a few key sectors in Africa, and further reorganized in 2012 to drop their overly-promotional CEO, spin off their nascent money-hungry airline, and concentrate more on building my favorite parts of their business, the infrastructure and agriculture assets — ports, trucks, farms, fishing fleets and the like that are all designed to profit from the growing push to develop Africa’s natural resources, particularly (but not exclusively) oil and agricultural products.
I’ve been very, very patient with Lonrho — I bought in thinking of it as at least a 5-10 year holding, with Africa on a very long development upswing and a pretty long timeframe required before some of their investments will reap real cash flow rewards. It’s not been an easy six months, with further challenges and what I’ve considered to be a likely turning point over the last few months, with margins improving and most of their agricultural businesses looking like they’re maturing nicely.
So, as luck would have it, that bottoming out and their challenges have also caught the attention of a billionaire who already owns 20% of the company, and he has now offered to take the company private in a cash offer. That offer is for 10.25 pence, which is about 15.5 US cents, and since they have the backing of several of the institutional shareholders and the full consent of the board, I expect the offer will probably go through.
I’m not all that thrilled with the offer, but it’s certainly a reasonable premium for those with a short-term focus — and I’m afraid that’s the overwhelming number of investors out there. That’s about a 10% premium to the price at which I first wrote about Lonrho three and a half years ago, which is far worse than the market has done, and it’s a small loss for me personally at this price since I bought more along the way — but Lonrho wasn’t likely to bounce back rapidly so this does monetize some of that potential for us. The offer price is right about where book value was as of the end of 2012, and ...