Norton Rose is standing firm as adviser to US electronics group Emerson Electric, which faced accusations of tearing City corporate governance codes “to shreds” during an aborted takeover attempt.
Last month Emerson attempted to buy the 48.9 per cent of computer component maker Astec (BSR) it did not already own, at a price set during a two-year low in its shares. It threatened to block the payment of dividends and sack board members if the deal did not go through.
Minority shareholders, including Electra Fleming and Norwich Union, instructed David Gold at Herbert Smith to file a High Court petition, claiming that Emerson had breached the Companies Act and that its actions were prejudicial to the minority shareholders' interests, designed to “diminish the share price” and encourage minority shareholders to sell their shares.
Then, at a stormy extraordinary general meeting on 9 March, Norton Rose senior partner David Lewis, as Emerson's only representative present, exercised Emerson's voting rights to remove three independent executive directors and replace them with Emerson's own appointees.
When shareholders present criticised the move, Lewis reportedly said: “I am just a poor lawyer. I am not qualified to comment on future strategy.” An angry shareholder then replied: “That is a rather pathetic answer. This meeting has become a bit of a farce.”
Astec's vice-chairman Peter Marshall said that Emerson's “wonderful charade” had torn the City's corporate governance codes “to shreds”.
Reporting Emerson's bid, The Daily Telegraph called on Norton Rose and Emerson's other advisers, bankers Deutsche Morgan Grenfell, stockbrokers Cazenove and PR agency Brunswick, to “tell their client that unless he starts to behave, they will all resign”.
Nick Ross, fund manager at minority shareholder Electra Fleming, told The Lawyer he had never seen such an “extraordinary situation” before.
He said that Emerson's appointees were hardly known to the minority shareholders, adding that Emerson's running of Astec “didn't reach the standards of corporate governance expected of a public company”.
Although Astec was listed on the London Stock Exchange, it was registered in Hong Kong and therefore, said Ross, it was technically not subject to the City Takeover Code, which forces shareholders with more than 30 per cent in a company to make a full bid.
Emerson later called off its bid but announced the replacement of a fourth executive director, Brian Christopher, with its own man. It also said it would pay a dividend this year, but that it would be less than Astec had first planned.
This week the High Court will hear Emerson's application, brought by Norton Rose, to strike out the minority shareholders' action.
Norton Rose's Lewis refused to comment on the details but he denied that he was embarrassed by his client's behaviour. “We would not be acting for them if we felt unhappy,” he said.