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Outlook: Pyrrhic victory for Astec institutions

t first glance, Emerson Electric's decision to allow its subsidiary Astec (BSR) to pay a final dividend is a victory for institutional shareholders. Two months ago Emerson threatened any minority shareholder in Astec who did not accept the US behemoth's offer of 111p a share with a complete suspension of dividends. Now it's performed a U-turn and even proposed that one of the directors it voted off the board a week ago be allowed back on. Has all the criticism heaped on Emerson and its blue-blooded advisers finally made them blush?

Er, not really. In fact, Emerson's move rather neatly undermines the court case that aggrieved institutional shareholders have brought against it. The institutions argue that suspending the dividend unfairly prejudices the rights of minority shareholders and the Companies Act forbids that. But Emerson has paid a dividend. Ergo, the institutions' case is groundless.

Whether this particular ruse fools a High Court judge remains to be seen. In the meantime, however, Emerson is showing no signs of softening its hard-nosed stance. It has pulled out of talks with Astec's independent directors after the two sides failed to agree a price. Given that Emerson was apparently willing to increase its offer by a whole 7p a share, that's hardly surprising. The Emerson appointees on Astec's board have also banned the four independent directors from speaking to anyone without their permission. Hardly the behaviour of a corporation that has seen the error of its ways.

So the law is now the institutions' only hope, and a fairly flimsy one at that. But whatever the outcome of the case, it's clear that the Takeover Code needs changing. The current rules are designed to prevent a bidder from getting above 30 per cent without making a full offer. The rules should require any company wishing to breach the 50 per cent threshold to make a full offer at the same price as it is buying shares. That would have required Emerson to make a bid at 153p when it raised its stake last March above 50 per cent. What the institutions would give for that price now.