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Shareholder backlash thwarts Unilever's plan to relocate HQ to the Netherlands

Unilever Group on Oct. 5 withdrew a proposal to scrap its dual-headed structure and relocate its headquarters to Rotterdam, Netherlands, handing a victory to the growing band of U.K. shareholders that had opposed the move.

In recent weeks, large investors such as Legal & General Investment Management, Schroders and Aviva Investors, as well as investor proxy groups and small-shareholder associations, publicly said they would vote against the consumer giant's plan to combine its Unilever PLC and Unilever NV listings in the Netherlands. One stated reason was that the restructuring would see Unilever removed from the FTSE 100 index, forcing index and tracker funds to divest their shares and potentially causing a decline in Unilever's share price in the short to medium term.

The company, in turn, launched a public relations offensive seeking to persuade key shareholders about the benefits of the consolidation to create a "stronger, simpler and more competitive Unilever." It argued that the new structure would make it easier for the company to change its portfolio through sales and acquisitions. But it became apparent to Unilever that the groundswell of opposition had grown too great.

The decision "will be very well-received by our clients," said Jessica Ground, global head of stewardship at Schroders, in a statement emailed to S&P Global Market Intelligence. "We thank Unilever for listening to and addressing our concerns."

The reversal is a setback for Unilever CEO Paul Polman, who had championed the restructuring plan and whose tenure at the helm of Unilever is coming to an end.

In a statement, Unilever said, "the board had acknowledged that its proposal has not received support from a significant group of shareholders and therefore considered it appropriate to withdraw." A planned shareholder vote on Oct. 25 and 26 on the proposal has been canceled.

Unilever, the maker of Dove soap, Lipton tea and Ben & Jerry's ice cream, is one of the biggest companies on the London Stock Exchange, with a market capitalization of about £107 billion. It has maintained its dual structure for decades. Other companies, such as Royal Dutch Shell PLC and BHP Billiton Group, also maintain dual-listing models.

Most of the asset managers owning Unilever's shares are based in the U.K., according to the UK Shareholders' Association, which represents small shareholders and had opposed the Unilever plan.

"I am not entirely surprised they backed down," Peter Parry, policy director for UKSA, said in an interview. "It does show that if investors and trade associations get together on an issue, then you can see real pressure building."

In a research note, UBS analyst Pinar Ergun wrote: "We expect a mixed reaction today: some PLC shareholders will view the withdrawal positively as the stock will maintain its inclusion in the FTSE 100 index but others might be disappointed. We believe the market's focus will now shift to [Unilever's] next steps, corporate governance improvements under the current structure and the operational performance."

Shares for both Unilever PLC and Unilever NV were trading flat following the news.

The company's restructuring proposal followed a yearlong review sparked by an unsolicited $13 billion takeover attempt by The Kraft Heinz Co. in January 2017. The approach was thwarted but underscored the constraints of Unilever's structure, including its ability to make changes to its portfolio through sales and acquisitions.

Under the terms of the proposal, shareholders of the two companies would share the same dividend and capital distribution interests in the new holding company and in the same relative proportions in the combined group as before.

Unilever may yet push ahead with a restructuring plan, though it's not clear in what form or when. In a statement, the company's chairman Marijn Dekkers said: "The board continues to believe that simplifying our dual-headed structure would, over time, provide opportunities to further accelerate value creation and serve the long-term interests of Unilever."

Added Parry: "It wouldn't surprise me that if they were to come back with something less inimical to [large and small] shareholders, then there's a good chance they'd get it through. It's a case of 'watch this space.'"

Unilever was formed in 1930 from the combination of the Netherlands' Margarine Unie and the U.K.'s Lever Brothers. Since then, the two companies have been governed by complex agreements to maintain parity between the economic rights of the respective shareholders. Shares of the Dutch-listed entity represent 55% of the ordinary share capital of the group while the U.K. entity represents the remaining 45%.