In March, Unilever announced that it would be ditching its City headquarters for Rotterdam as part of its plan to simplify its business into a separate legal entity.
Since then the maker of Dove soap and Marmite has not provided clarity on several key points, including whether the firm will continue to be listed on the FTSE All-Share index.
One of the firm’s largest shareholders, star manager Train, has expressed concerns over the lack of clarity Unilever has provided up until this point.
“I have to say right now we’re not necessarily persuaded that it’s in the interests of our clients,” he said while speaking at the Frostrow Capital Investment Trust conference last week.
“Why would we or any other holder of Unilever plc, why would we vote later this year in order to lose our access to the plc? The company itself has yet to produce its final definitive documentation explaining to us why it makes sense to us to give up our UK piece of paper”.
The City of London investment trust manager Job Curtis also hinted that he would reject Unilever’s without further reassurances from the firm.
“I’m going to listen to the arguments,” he said. “I haven’t yet heard the arguments, but from what I know at the moment, I’ll be voting against it.”
The Anglo Dutch consumer goods company is among the top ten holdings in his £1.5bn The City of London trust, making up 2.9% of his portfolio.
Dissent among the ranks
Laith Khalaf, senior analyst at Hargreaves Lansdown, does not think dissent among several shareholders, even key owners, will put a damper on its plans to relocate.
“Unilever is such a big company that even a couple of relatively big institutional investors rejecting the proposal wouldn’t necessarily make a huge amount of difference,” he said.
Train owns around 28 million shares in Unilever plc, the firm’s UK-listed business. It is the second largest holding in his Finsbury Growth & Income Trust, comprising a 9.5% weighting.
His fund group, Lindsell Train, which he co-founded with Michael Lindsell, is the third largest shareholder in the consumer goods giant, behind Blackrock Investment Management, which owns 35 million shares.
Vanguard is currently the largest shareholder in Unilever as at 1 May, owning a 2.93% stake in the company or some 36 million shares.
Unilever’s relocation to Rotterdam must be approved by 75% of UK shareholders. The Dutch line only requires the support of 50% of shareholders.
Voting is due to take place at some point during the third quarter.
What’s in it for me?
Unilever will also have to convince major shareholders Norges Bank Investment Management, Legal & General Investment Management, Threadneedle Asset Management, Aberdeen Asset Investments and State Street Global Advisors to give up their shares in the PLC, a task Curtis said it is “going to struggle with”.
“I think they’re going to have a lot of difficulty getting it through. It’s going to be institutions that can only invest in the UK who are going to vote against it. Why would they favour it?”
However, Khalaf thinks Unilever will have an easier time winning UK investors over.
“There are a couple of niggles, but I don’t think they’re insurmountable hurdles,” he said.
“There are provisions within most UK funds to be able to hold a certain percentage of overseas shares anyway so those can be utilised in this case.”
In terms of incentives for UK shareholders, “it’s a simpler corporate arrangement at the end of the day,” said Khalaf. “There is a slimming down of the corporate costs. In the grand scale of Unilever, it’s probably not hugely significant, but I think that is their rationale for doing it.”
Self-preservation
Unilever has repeatedly said the decision to ditch the British half of the business has nothing to do with the UK’s impending divorce from the EU.
Chairman Marijn Dekkers reiterated this point at what could be the firm’s last AGM in the City earlier this month, stressing that the decision to move its headquarters was about strategic flexibility not protectionism.
But Curtis said the move was unquestionably bad for the UK domestic economy.
“I don’t think it’s a good thing for the UK market. You can’t replace Unilever.”
Unilever is the third largest company in the UK with a market cap of £124bn.
Curtis went on to suggest that Unilever’s decision to abandon its London headquarters was an act of self-preservation to avoid being acquired by a competitor.
But he argued that corporate governance controls in the UK would be better for the business and by extension shareholders in the long run and prevent management from getting “complacent”.
“Part of the motivation is Unilever wanted to protect itself against takeover. Whilst I believe in taking a longer-term view, I think our system of open corporate control is quite healthy. It stops managements becoming too entrenched and complacent.”
Dekkers denied that the decision to relocate to Rotterdam had anything to do with avoiding a takeover at the AGM.
