Outlook: US Goliath faces Astec investors
Thursday 29 January 1998
To recap, Astec's minority shareholders are attempting to stand up to a classic piece of bullying from Emerson, the American electronics giant. Emerson controls 51 per cent of the company and, in its old-fashioned way, wants to buy the rest on the cheap, warning that if its proposals are not accepted the minorities can kiss goodbye to their dividends.
To show it means business, Emerson has already requisitioned an EGM to remove the three independent executive directors from the board and replace them with its own appointees.
Despite yesterday's unusually public display of huffing and puffing from fund managers, the answer seems to be that there is very little they can do. Emerson is fully within its rights. The brutal but simple fact is that, having taken control of Astec through an asset swap back in 1989, Emerson can pretty much do whatever it likes.
If Emerson is obeying the letter of the law, however, it is hardly observing the spirit. For eight years, the relationship between Emerson, Astec and its remaining shareholders was a happy one. And when Emerson quietly lifted its holding above 50 per cent last year it was quick to reassure everyone that nothing had changed. So when Emerson told Astec's independent directors to accept an offer at the prevailing market price of 111p or else, it's not hard to see why the City's normally discreet fund managers felt hard done by.
If Emerson does not back off, the next step is legal action. Apparently, section 459 of the Companies Act is designed to protect minority shareholders from "unfair prejudice" but no one knows whether it will work in this case. Of course, the happiest conclusion for all concerned would be if Emerson coughed up a decent premium, say 140p a share, and permit everyone to go home with honour intact. In the meantime, the old rule of caveat emptor applies. If you invest in a company where the controlling shareholder suddenly decides to play hardball, you can't count on the old British sense of decency and fair play to protect you.
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