The Unilever board has announced this morning that it is scrapping its plan to simplify its dual-headed legal structure in response to shareholder concerns. Unilever has a complex group structure with two parent companies - Unilever PLC, listed in London and New York and Unilever NV, listed in Amsterdam and New York.
It had announced in September 2018 a proposal to create one parent company, incorporated in the Netherlands and listed in London, New York and Amsterdam. So if the new parent company was retaining its London Stock Exchange listing, what were shareholders' concerns? Whilst Unilever made it clear that it thought capital raising and deal-making would be easier with a simplified structure, the big issue for UK investors was that Unilever would no longer be eligible for the FTSE 100 index, the FTSE 350 index and the FTSE All-share indices. For funds that track those indices or benchmark themselves against them (like Aviva, Columbia Threadneedle, M&G Investments, Legal & General), this would mean that investing in Unilever would become much harder, or even impossible. Others have commented that the stricter hostile takeover rules in the Netherlands may be unpalatable to shareholders looking for an exit.
Whilst Unilever's proposals would always have been discussed extensively by the City, the backdrop of Brexit has brought this story to the attention of a wider audience (despite the fact that Unilever claimed its decision had nothing to do with Brexit and that UK jobs would not be affected). As a result, a number of UK investors have been very vocal in the last couple of weeks about their plans to vote against the proposals. The announcement today is an example of the power of shareholder activism. In addition to discussions behind closed doors, institutional investors are now increasingly going public with their views.
Changes to the law in the last 10 years have enhanced shareholder rights and boards can no longer expect controversial decisions to be quietly rubber stamped. Shareholders now have many tools in their activist arsenal, including voting proposals down, asking difficult questions at meetings, requisitioning their own meetings, removing directors and using public announcements and the press to voice their concerns and urge other shareholders to join them in dissenting. A public listing is a fantastic platform for many companies but it also brings a big shift in the balance of power towards investors and puts all corporate decisions squarely in the public eye.
Unilever scraps Dutch relocation plan
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