Consumer goods goliath Unilever (ULVR) plans to move from being two legal entities to become one incorporated in the Netherlands, a blow to the UK business scene one year before Brexit.

The decision to abandon its long-established UK base ends months of lobbying the Anglo-Dutch corporate giant by the British and Dutch governments alike, although cushioning the blow is the fact Unilever intends to base key divisions in the UK.

The FTSE 100 fixture’s continuing inclusion in the blue chip index is yet to be determined.

The company is talking with major index providers to determine how they would treat Unilever after this historic change occurs; the shares could be hit if it was no longer in the FTSE Index, as tracker funds would be forced to sell.

THE NEXT STEP

In a seismic statement headed ‘BUILDING THE UNILEVER OF THE FUTURE’, the Persil, PG Tips, Marmite and Dollar Shave Club brands owner announces the next steps in its transformation ‘into a simpler, more agile and more focused business. The changes will further drive long-term performance and shareholder value, and build upon our Connected 4 Growth programme.’

Firstly, Unilever is restructuring itself into three divisions; Beauty & Personal Care, Home Care and Foods & Refreshment. The first two will be headquartered in London, with Foods & Refreshment’s HQ remaining in Rotterdam.

Secondly, Unilever’s corporate structure will be simplified from two legal entities into a single entity incorporated in Holland.

This single holding company will trade as one class of shares and boast ‘a global pool of liquidity’. Newly unified Unilever will be tax-resident in the Netherlands, although Unilever will seek a premium listing on the London Stock Exchange, and listings on Euronext in Amsterdam and on the New York Stock Exchange.

3. Great Ideas - Unilever

Since its 1930 formation through the merger of British soap maker Lever Brothers and Dutch margarine producer Margarine Unie, Unilever has been owned through two separately listed companies, a Dutch N.V. and a UK PLC, companies long governed by complex agreements to maintain parity between economic rights of the respective shareholders.

GOING DUTCH

The decision to go Dutch reflects the fact that the Netherlands shares represent the larger portion of Unilever (55% of the group's combined ordinary share capital), and trade with greater liquidity than the UK shares.

Unilever will have one new class of share, ‘new NV’, with existing NV and Plc shareholders set to receive equivalent value in new NV shares and implementation expected towards the end of 2018.

The company will continue to report its earnings and declare dividends in euros, ‘as has been the practice for many years’ and stresses there’ll be ‘no change to our policy of seeking to pay an attractive, growing and sustainable dividend.'

Chairman Marijn Dekkers insists ‘Our decision to headquarter the divisions in the UK and the Netherlands underscores our long-term commitment to both countries. The changes announced today also further strengthen Unilever's corporate governance, creating for the first time in our history a 'one share, one vote' principle for all our shareholders.'

The unification of Unilever, whose London-listed shares cheapen 28.5p (0.75%) to £37.92 on the news, follows a strategic review after it fended off a blockbuster $143bn bid from Kraft Heinz.

Investec Securities comments: ‘The primary purpose of this change is, in our view, to facilitate the issuance of new shares and - secondarily - to facilitate the demerger of existing parts of the business. Unilever emphasises that there are no such plans currently.

‘The Dutch listing offers greater protection from takeover - but we think investors will give this a pass, given Unilever’s successful rejection of one of the very few possible bidders (Kraft Heinz) a year ago.’

Investec adds: ‘The company is in discussion with major index providers to determine how those providers would treat Unilever after this change; in London, the company is seeking “a premium listing” - we assume arguing that the liquidity of new NV shares on the LSE should remain such that inclusion in the FTSE 100 would be justified.'

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Issue Date: 15 Mar 2018