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Unilever's about-face on London base leaves CEO in limbo as shareholders revolt
UNILEVER abandoned a plan to leave the UK for a single headquarters in the Netherlands after shareholders rebelled, torpedoing chief executive officer Paul Polman's vision of reshaping the company through dealmaking.
The about-face follows mounting opposition from fund managers at Columbia Threadneedle, Legal & General Investment Management, Schroders and other firms, which faced having to sell Unilever shares once the company dropped out of benchmark UK stock indexes. The company's UK-listed shares fell as much as 1 per cent early Friday.
"This is somewhat humiliating - or at least humbling - for CEO Paul Polman, and may accelerate his retirement from the company," Investec analyst Eddy Hargreaves said in emailed comments. The maker of Ben & Jerry's ice cream and Dove soap had previously begun a search for a successor to the chief, who is Dutch and has served as CEO since 2009.
Unilever said when it announced the move in March that a single base in Rotterdam would give it more flexibility to "undertake major M&A" using the stock or disposing of parts of the business. Like other consumer-goods giants, the company is wrestling with slow growth for some of its mainstream brands, which also include Lipton tea and Axe deodorant.
The decision hands a much-needed political win to Prime Minister Theresa May as she tries to stem a corporate exodus after the Brexit vote. While the company had insisted that the move was not tied to the UK's plan to leave the European Union and wouldn't affect employment meaningfully, the planned departure of one of Britain's largest companies undermined Mrs May's vision of an outward-looking post-Brexit economy. Unilever operates in 190 countries and has kept dual headquarters since its creation from the 1930 merger of Margarine Unie of the Netherlands and UK soapmaker Lever Brothers.
"Despite the government's appalling mishandling of the Brexit negotiations, the capital will always be one of the best cities in the world in which to do business," London Mayor Sadiq Khan, a member of the opposition Labour Party, said on Twitter.
Leaving the London headquarters would almost certainly have eliminated Unilever's membership in UK benchmark stock indexes. That posed a problem for British investment funds that track gauges like the FTSE 100, which would have been required to sell their holdings, potentially tying Unilever up in controversy over compensation for any losses.
Shareholders were set to vote on the plan at the end of the month.
The move to drop the proposal is a blow to Dutch Prime Minister Mark Rutte, a former employee of the company. His government is pushing to scrap a tax on corporate dividends to make the Netherlands attractive to multinationals such as Unilever.
While dropping plans to move, Unilever said it still thinks streamlining its structure makes sense.
It did not say whether that could mean a revised plan to choose one of its two headquarters cities as a single base.
"The board continues to believe that simplifying our dual-headed structure would, over time, provide opportunities to further accelerate value creation and serve the best long-term interests of Unilever," chairman Marijn Dekkers said in a statement.
The move to a single Dutch base could have afforded Unilever greater protection against takeovers, after the company fended off an unwanted approach from Kraft Heinz Co last year.
Consolidating under one roof was intended to give the company strategic flexibility to undertake major deals using its stock, or perhaps divest parts of the business, chief financial officer Graeme Pitkethly said last month. Withdrawal from the plan may mean that large deals are off the table until the company details its next steps, Deborah Aitken, a Bloomberg Intelligence analyst, said in a note.
Despite Unilever's efforts to rally support for the plan, investors representing 10 per cent or more of the company's shares outstanding pledged to vote it down, with new names joining the dissidents almost daily over the last few weeks. The plan was subject to approval by 75 per cent of the UK entity's shareholders and 50 per cent of the Dutch investors.
"One major lesson for them from this is that before embarking on a major corporate restructuring or administrative restructuring, they need to probably have the dialogue with all the major investors first, before launching formally a proposal to change," Robert Lloyd, fund manager at Blue Whale Capital, said in a phone interview.
"That's where they look a little bit stupid in that they launched a proposal to change, and then engaged in the dialogue." BLOOMBERG