Unilever to combine Anglo-Dutch arms in UK company
Consumer goods giant reverses previous attempt to shift to Netherlands
Unilever is to abandon its dual Anglo-Dutch corporate structure in favour of a single company based in London, reversing attempts two years ago to combine its businesses in the Netherlands.
The maker of Marmite, Dove soap and Ben & Jerry’s ice cream said it would seek to integrate its Dutch entity into its UK arm, ending a legacy of Unilever’s formation from the merger of a Dutch margarine company and British soap maker Lever Brothers more than 90 years ago.
The consumer goods group, one of the UK’s largest companies by market capitalisation, said the shift would make equity-based acquisitions or disposals easier and faster, including a potential spin-off of its tea division.
Past disposals such as the sale of Unilever’s spreads division have been complicated by the need to unwind complex internal structures resulting from the dual domicile.
Nils Andersen, chairman of Unilever, said: “We want to accelerate the pace of portfolio change, and unifying our legal parent structure will give us a greater flexibility for equity-based acquisitions and demergers. That’s very important right now as we anticipate an increasingly dynamic business environment after the Covid-19 pandemic.”
He added: “The structure of the company is outdated . . . We didn’t get a bloody nose in 2018 to now kick the can down the road for a few more years.”
A plan two years ago to merge the UK into the Dutch entity, pushed by former chief executive Paul Polman, was scrapped after shareholder opposition, in part because the company would have dropped out of the FTSE 100 after abandoning its London listing.
Shareholders will need to approve the fresh plan to scrap the dual structure, which was hailed by the UK government as a “vote of confidence”. It will require consent from half of the shareholders in the Dutch entity and 75 per cent of those who own UK-based shares.
The proposal raises the possibility of a split of Unilever’s food arm from its beauty and personal care and food divisions. The company said the Dutch government had sought an assurance that any future spin-off of the foods and refreshment division would result in a Dutch-based and listed company.
Unilever said it was happy to make such an assurance but had “no plans” at present to demerge the division.
The company said it expected to retain its listing in both the FTSE 100 and Dutch AEX indices and would remain listed on exchanges in London, Amsterdam and New York. It said operations in both the UK and Netherlands would remain the same.
Alan Jope, chief executive, said the company had not canvassed shareholders before announcing the move.
Analysts welcomed the plan after a lacklustre recent performance from Unilever, which reported flat underlying sales growth in the first quarter after the pandemic hurt its food service and ice cream divisions.
Shares in the Dutch entity were up 1.2 per cent to €47.74 in late afternoon trading on Thursday, while the UK-based shares rose 0.7 per cent to £43.47.
The shift will make it easier for Unilever to raise equity if required.
Martin Deboo, analyst at Jefferies, said a €6.8bn deal reached in 2017 to sell Unilever’s spreads business to KKR had required dozens of internal unbundling transactions, as some of the relevant subsidiaries were technically owned by the UK entity and some by the Dutch.
That helped convince management that simplification was needed, he said. “The immediate issue is whether NV shareholders will have the same objections to the proposal as PLC ones did in 2018, something a retained AEX listing might mitigate.”
He added that the shift “is more than just a legal change . . . It would suggest to me that they are serious about evolving the portfolio. We have long been arguing for a split of the business to unlock some value — it’s refreshing to see they are thinking creatively and radically about this.”
Following the merger, shareholders in the current Dutch entity will own about 55 per cent of the new company, with those already owning UK shares accounting for about 45 per cent.
Alok Sharma, UK business secretary, said he was “delighted” to see Unilever’s proposals to become a fully incorporated UK company, calling it “a clear vote of confidence in the UK”.
The Dutch government had urged Unilever to seek a single listing in the Netherlands after Brexit. It tried to woo the group by scrapping a dividend tax on big corporates, but the tax break was ditched after a public backlash in 2018. Eric Wiebes, minister for economic affairs of the Netherlands, said Unilever informed the Dutch government of its intention in mid-May. Mr Wiebes said he “regretted” the decision and said the government had been in “intensive dialogue” to save Unilever’s Dutch operations.
In a letter to parliament, Mr Wiebes wrote that the move would not cause job losses in the Netherlands. The Dutch government would set up an advisory group to discuss ways to strengthen Unilever’s presence in the country, he said.
avid Hayes, an analyst at Société Générale, said the announcement would revive calls for a large-scale merger with rivals such as Reckitt Benckiser or Colgate-Palmolive.
Unilever’s largest division is beauty and personal care, which accounted for €21.9bn of turnover in 2019, followed by the Dutch-based food division, with €19.3bn, and home care with €10.8bn.