September 25, 2018 / 9:44 AM / 3 months ago

Breakingviews - Unilever has itself to blame for investor revolt

Unilever headquarters in Rotterdam, Netherlands August 21, 2018

LONDON (Reuters Breakingviews) - Unilever, only has itself to blame for a growing shareholder revolt in Britain. Loose ends in its plan to pick Rotterdam over London as its global head office have left the consumer giant vulnerable.

Chairman Marijn Dekkers and Chief Financial Officer Graeme Pitkethly on Tuesday defended the move before a crucial investor ballot next month. The Marmite maker needs approval to adopt a single Dutch holding company, rather than maintaining two listed entities in the United Kingdom and Netherlands. M&G Investments has joined Lindsell Train, Aviva Investors and Columbia Threadneedle in opposing the plan. The dissidents control 5 percent of Unilever’s UK-listed stock.

Unilever needs 75 percent of UK shareholders voting at the October meeting to back the move. However, the fewer investors attend, the greater clout the rebels will have. Unilever boss Paul Polman can’t take success for granted.

His plan was always going to be a tough sell. Its chief benefit is that it is easier for a single holding company to use Unilever stock as an acquisition currency. But the streamlining won’t save much money and creates problems for some UK shareholders. Funds that track the FTSE 100 Index will be forced to sell after the company drops out of the benchmark.

Unilever’s haste to complete the deal doesn’t help. One concern is whether future dividends paid to UK shareholders will be subject to Dutch withholding tax. The government in the Netherlands has promised to abolish the levy, but is facing opposition. Investors will have to decide whether to back Unilever before the Dutch Senate votes on the tax bill in December.

Unilever has a backup plan to sidestep the tax by distributing capital rather than paying dividends out of earnings. But it can’t to do this forever. And investors are unsure how those payments would be taxed. 

The rejig may also force Unilever to buy out minority shareholders in its Indian subsidiary, which could cost 3.5 billion euros based on current valuations. Polman is still waiting for an exemption from Indian authorities.

Those lingering uncertainties risk turning the restructuring from a modest positive into a real headache. It would have been better to wait a few more months.

Breakingviews

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