Landmark decision: Unilever simplifies corporate structure, snubs UK and opts for the Netherlands

15 Mar 2018 --- In a blow to Britain in the runup to Brexit, consumer goods giant Unilever is simplifying the company’s corporate structure into a single legal entity in the Netherlands – chosen as the best location to transform Unilever into a “single, agiler and focused business.” Unilever has been weighing up whether to headquarter in London or Rotterdam for quite some time, sparking debate over the impact that Brexit is having on business decisions – and has now finally reached a decision, choosing the Netherlands over Britain.

The move ends almost 90 years of the British-Dutch giant straddling both countries and has been at the center of the debate over the last few months over where it will choose.

Deciding between the two countries has been viewed by many as a political statement prompted by Brexit – with the result confirming a loss for the UK at a time when the government is keen to show that a post-Brexit Britain is attractive to big businesses.

Unilever’s announcement is very much viewed as a victory for the Netherlands, although the company has made no official mention of the move being directly connected to Brexit or political topics like protectionism, insisting that it is about simplifying the structure, improving corporate governance and easing takeover deals.

The expectation is that by moving to a single holding company with a single share class, Unilever will have greater flexibility to undertake equity-settled acquisitions and demergers.

Unilever NV represents the larger portion of shares accounting for approximately 55 percent of the group and they trade with “greater liquidity” than PLC shares, according to Unilever chairman Marijn Dekkers.

“We are in no doubt that the changes we are making will strengthen our company, putting us in the best position to continue our track record of delivering long-term, competitive performance and shareholder value creation,” he says in a statement.

A review of Unilever’s dual-headed legal structure in both Britain and the Netherlands has been a talking point among investors for quite some time, but this came to a head last year when Unilever was prompted to rethink its business structure following the US$143 billion takeover move by Kraft Heinz in February 2017. Unilever rejected the merger offer and set about reviewing its future, as the company realized that its long-established dual-headed legal structure is extremely complex.

Dutch prime minister Mark Rutte had been lobbying Unilever to choose the Netherlands, while UK officials had been making the case for London over the last few months.

Unilever’s decision will comes as a blow for British Prime Minister Theresa May as she continues to negotiate a withdrawal from the EU, and comes at a time when the UK government is being heavily criticized for lack of clarity, particularly not providing assurances to UK businesses and industry leaders desperate to know what will happen when the country leaves the European Union single market.

Unilever owns more than 400 brands, with a turnover in 2016 of over €50 billion and many of its brands like Axe/Lynx, Dove, Hellmann's, Knorr, Lipton, Lux and Magnum have sales of more than €1 billion.

Earlier this year, Unilever reported better-than-expected growth in the fourth-quarter underlying sales driven by a step-up in emerging markets as its restructuring program continues to yield results.

The maker of Marmite and Ben & Jerry's ice cream said its underlying sales rose by 4.0 percent in the final quarter of 2017, an improvement from growth of 3.0 percent in the first half and 2.6 percent in the third quarter, and above the company-supplied consensus forecasts of 3.7 percent.

Unilever of the future
Unilever says it is evolving its structure to be based on three Divisions – Beauty & Personal Care, Home Care, and Foods & Refreshment – will be more empowered, with greater responsibility for making long-term strategic choices and managing financial performance.

All three divisions will continue to benefit from Unilever’s global scale and route to market, according to the company.

• The headquarters of the Beauty & Personal Care Division and the Home Care Division will be located in London. This secures nearly £1 billion per year of continued spend in the UK, including a significant commitment to R&D, says Unilever.

• The headquarters of the Foods & Refreshment Division will continue to be based in Rotterdam.

• Unilever will continue to be listed in London, Amsterdam and New York.

The proposed simplification will provide greater flexibility for strategic portfolio change and help drive long-term performance.

The changes also further strengthen Unilever’s corporate governance, creating, for the first time, a “one share, one vote” principle for all shareholders. Upon completion, the NV preference shares will be canceled, and it is intended to close the NV Trust Office and terminate the related depositary receipt structure. Unilever will also continue to apply both the UK and Dutch corporate governance codes.

Unilever’s employment of 7,300 people in the UK and 3,100 people in the Netherlands will be unaffected by the changes.

By Gaynor Selby