Unilever has abandoned its plan to scrap its dual-listed structure and move its headquarters to the Netherlands after a groundswell of opposition from UK shareholders.
The company said that after an extensive consultation period, the proposal had not received support from a significant group of shareholders and therefore it was “appropriate to withdraw”.
Chairman Marijn Dekkers said in a statement that the board continued to believe that the corporate overhaul would be in the “best long-term interests of shareholders” and that it would now “consider its next steps”.
The withdrawal is also a blow to chief executive Paul Polman, who is in nearing the end of his near decade long tenure at the group, and to Mr Dekkers, who has been in place since 2016. Both had championed the move as part of a multi-pronged strategy at Unilever to respond to what Mr Polman has privately called the “near-death experience” of the aborted takeover attempt last year by Kraft Heinz.
READ ALSO: Unilever’s Q1 earnings show slow start to New Year
“This is clearly a win for UK plc but frustrating for Unilever,” wrote Berenberg analyst James Targett in a note. “It is rather embarrassing for management who had lobbied hard for simplification.”
The dual-headed structure is a the legacy of Unilever’s formation in a merger of a Dutch margarine and a British soap maker 89 years ago. The debate over Unilever’s plan became fraught with symbolism coming only months ahead of Brexit given that Unilever is a big employer and makes popular British products like Marmite
The consumer goods giant had billed its proposed changes as a much needed simplification of its corporate governance that would allow it to be more nimble on disposals and acquisitions.
However, the proposal had attracted strong opposition from leading UK institutional shareholders, including Columbia Threadneedle, Legal & General Investment Management, Schroders, Aviva Investors and M&G Investments.
UK shareholders had been concerned that once Unilever shifted its domicile to the Netherlands, the company would be kicked out of the FTSE 100 index. This would have forced funds that track the stock market benchmark, as well as many active funds, to sell their holdings.
Shareholders had complained they would have to do this without the premium that would normally be generated in a takeover and potential tax costs.
David Cumming, chief investment officer for equities at Aviva Investors, had said: “It doesn’t add any value for us, we lose quite a large company from the index and we don’t see any justification for the move.”
Mr Targett said that Unilever shares could benefit in the short term from ending uncertainty around the vote and removing the overhang from forced selling by UK shareholders had Unilever exited the FTSE. In early trading, shares in Unilever shares were flat in Amsterdam and 0.7 per lower in London.
Three-quarters of Unilever’s UK share capital needed to be voted in favour for the proposal to pass. The company also needed a majority of UK shareholders present or represented to vote in favour of the move at an October 25 meeting.
If shareholders had approved its proposal, Unilever would have become one holding company incorporated in the Netherlands, with shares listed in Amsterdam, London and New York.
Some shareholders and analysts have criticised the proposals as an attempt by Unilever to shield itself from hostile takeovers, given that Dutch corporate governance rules can be more protective than British ones.
But Unilever had said this was not the case and promised to do away with two mechanisms it would have under its Dutch rules to thwart an unwanted takeover. Those are preference shares with outsized voting rights and its Dutch Trust Office, or the Stichting foundation, which can issue new shares if its board deems it to be in the company’s interest.
Unilever said despite withdrawing its plan for unifying its corporate structure, it would proceed with the plan to cancel the Dutch preference shares.
The abandonment of the simplification plans also has an impact in the world of investment banks and advisers, where four sets of firms — Morgan Stanley, UBS, Centerview Partners and Deutsche Bank — were working on the process for Unilever.
In addition to fees, the banks had been awarded roughly $90.5bn of league table credit, an imperfect, but wildly recognised measure of how banks stake up by the volume of deals they worked.
With just about under three months remaining in 2018, Morgan Stanley had been leading its main investment banking rival Goldman Sachs for much of the year thanks in part to its work with Unilever. However, Morgan Stanley will now fall to second place due to the deal’s collapse.
