Crunch time approaches for Unilever’s Netherlands move

Writer, Dan Coatsworth
Wednesday, October 3, 2018 - 10:05

On 26 October UK shareholders in consumer goods giant Unilever will vote on a plan which would see the business exit the FTSE 100 index as it abandons a dual UK-Dutch stock market listing and moves its headquarters to Rotterdam.

This meeting will follow one 24 hours earlier in the Netherlands where Unilever needs 50% approval from its Dutch shareholders; in the UK the threshold is a more demanding 75%.

Four major institutional shareholders have said they intend to vote against the proposals, including Aviva Investors and M&G investments.

Although these are some of Unilever’s largest individual shareholders, they only represent around 5% of a fragmented shareholder base and retail investors could therefore play a pivotal role.

Central to the institutional opposition is a complaint that they will be forced to sell the shares as they lose their FTSE status.

Index operator FTSE Russell has confirmed the new format Unilever shares would not be eligible for inclusion in the FTSE 100 and this has been characterised as an effective takeover of the company without any premium being paid. And, if lots of investors, including in particular tracker funds, are forced to sell the shares at the same time the stock could fall in value.

There are also worries about the impact of a 15% withholding tax on dividends which the Dutch government plans to scrap in order to pave the way for Unilever’s move. This change is politically divisive and if it fails, Unilever has suggested it could offer substitution payment to compensate shareholders.

Lindsell Train fund manager Nick Train, who runs several highly-rated funds which have Unilever as a significant holding, has observed the company is offering no guarantee that shareholders would be protected from any future changes in Dutch tax policy.

Should the company gain the necessary shareholder approval then shares in the restructured business will commence trading on Christmas Eve.

The timing of Unilever's announcement has led many observers to link the development to Brexit, though for its part Unilever says it is unrelated and is merely a long overdue simplification of the group’s structure.

One of the potential upsides is that it would afford the business greater flexibility in using shares to make acquisitions.

If shareholders vote down Unilever’s proposals, and Aviva Investors chief investment officer David Cumming has gone on record to say he would be ‘very surprised’ if they were to get the changes approved, then the company will have to go back to the drawing board.

One option might be to do what fellow Anglo-Dutch firm RELX did in abandoning a dual share structure but keeping the London PLC listing.

For its part Unilever says the vast majority of shareholders are ‘fully supportive’.

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Dan Coatsworth

Daniel Coatsworth is the editor at Shares and specialist on the mining sector. He previously wrote for Teletext's finance and money pages on Channel 4, ITV and Channel 5; and his work has appeared in many of the leading personal finance and financial industry publications.