1. Commerce
April 20, 2018

Unilever could face shareholder revolt over restructuring and relocation plans

By Shoshana Kedem

Consumer goods giant Unilever — the third largest company on the FTSE 100 — could be facing a shareholder revolt over plans to overhaul its structure, which includes ditching its London headquarters for Rotterdam.

However, Unilever is working hard to convince shareholders and investors to agree to the move.

If the move goes ahead the company’s dual-headed structure, with joint headquarters in both London and Rotterdam, would be consolidated into one legal base in Rotterdam.

The decision, expected around the end of September, requires the approval of 75% of UK shareholders and 50% of Dutch shareholders to be carried.

Some shareholders have balked at the move, as it means Unilever would be removed from the FTSE 100 index — although its scrambling to find a way to remain.

John Monahan, a senior analyst at Square Mile Investment Consulting and Research, said a shareholder revolt could be warranted:

Unilever is a fairly sizeable part of the UK index, and therefore for a UK manager to have a sizeable spot, which has been relatively popular in terms of investment to move out of their potential universe is probably going to be a negative for them.

Abandoning its UK base is also a way for Unilever to shield itself from hostile takeover bids, as Dutch rules make it harder to mount takeovers.

Unilever managed to dodge a $143 billion takeover attempt by US giant Kraft Heinz in February.

Some investors won’t be pleased about this, however.

Monahan said:

If there’s a company that’s equivalent or has complementary products, and merges those two companies together, a certain amount of costs could be taken out. Investors would prefer to see those costs taken out, and benefit from higher profits returned back as dividends.

Acquisitions can also drive up share prices.

Monahan added:

If company x comes in and buys Unilever at what the market perceives to be an inflated price, then that would be reflected in the share price thereafter in the acquiring company.

Showdown with shareholders

Unilever — makers of Dove Soap, Colman’s Mustard, and PG Tips tea — told Verdict it is battling to get investors on board by highlighting the positive impact simplifying its corporate structure could have on its share price.

A spokesperson said:

We have engaged extensively with Unilever shareholders on our proposal.

There is a small group of shareholders whose holding may be directly affected by our proposal and we will continue to engage with them.

In these discussions, shareholders have confirmed their support, recognising that it offers the best means to drive long-term performance and value.

Unilever could maintain its position in the FTSE 100 index, though there are significant barriers to overcome. The move to Rotterdam is expected to relocate much of its operations to the Netherlands.

Higher trading volumes in Unliver’s Dutch NV company will see it listed on the Euro Stoxx index.

Columbia Threadneedle, one of Unilever’s top ten shareholders, has criticised Unilever for not being upfront about ‘the impact on its premium listing and index inclusion in London’.

Another anonymous shareholder unhappy about the move told the Financial Times it might vote against the decision if it meant Unilever would exit the FTSE 100.

In response, a Unilever spokesperson told Verdict:

We will seek a premium listing on the London Stock Exchange, and listings on Euronext in Amsterdam and on the New York Stock Exchange.

Upon completion, the NV preference shares will be cancelled, and it is intended to close the NV Trust Office.

The changes also further strengthen Unilever’s corporate governance, creating, for the first time, a ‘one share, one vote’ principle for all shareholders.

This means that each person who invests in the company gets one vote per share of the company they own.

In the hope of luring investors on board, Unilever chief executive Paul Polman unveiled a fleet of confidence-building measures designed to instil some Dutch courage in the move.

Unilever’s sales are projected to grow between 3% and 5%, with 20% growth in operating margins by 2020. The company has also promised to raise dividends by 8%.

From May, the company is also launching a share buy-back programme of up to €6 billion.

Unilever’s first quarter of 2018 saw underlying sales growth of 3.7%.

Unilever said:

We are very constant that the proposals that have been put forward are the best way of driving long-term performance in the business.

We remain highly confident of achieving the required level of shareholder support.  Proposals are expected to be placed before shareholders around the end of Q3.

All 7,300 of Unilever’s employees in the UK and 3,100 workers in the Netherlands would be unaffected by the move.

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