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Unilever goes dutch – what it means for the UK and investors

Laith Khalaf

It’s too simplistic to view Unilever’s move purely through the prism of Brexit, because there are lots of other factors at play. Unifying the corporate structure will simplify the company’s affairs, and the fact 55% of shares are held through the Dutch listing probably gave the Netherlands a head start on the UK. Contributor Laith Khalaf, Senior Analyst, Hargreaves Lansdown.

The abolition of Dutch withholding tax from 2020 also means Unilever can move to Rotterdam without fearing that international investors will shun its stock for tax reasons. The company also says a unified corporate structure will make M&A activity easier in future.

That’s not to say there won’t be any implications for Unilever if the UK leaves the single market and the customs union, but any issues in that regard will need to be addressed wherever the company’s brass plaque happens to be.

There are no clear knock on implications for other UK companies, in as much as Unilever is one. This is after all a company which sells its wares in 190 countries and reports in euros, and while there are 7,300 UK employees, they are only a fraction of the company’s 169,000 global workforce. European sales only account for around a quarter of the company’ revenues, and Unilever doesn’t even split out the UK in its periodic reporting. So while listed in the UK, and a large constituent of the FTSE 100, Unilever is in fact a global player.

Unilever as a business
In terms of Unilever as a business, little can be expected to change as a result of this decision. The same goes for its UK presence. The economics of manufacturing, researching and selling goods in the UK don’t change as a result of this move, so it’s no surprise to see Unilever re-iterate its commitment to the operations it has on these shores. Indeed only a few dozen roles are expected to move to Rotterdam as a result of today’s decision.

For the moment there’s no change for Unilever shareholders, and full details of the proposed move to Rotterdam will be published later in the year. That will give us more information on any relevant issues, in particular the taxation of the dividend payment which could temporarily have an effect on UK shareholder returns.

Unilever’s FTSE listing
Unilever is the third biggest company in the UK stock market, though it is the thirteenth in terms of its index weighting, making up 2.4% of the FTSE 100, because of its current dual structure. Unilever could lose its place in the Footsie as a result of moving to Rotterdam. This isn’t going to have an impact on the shopping habits of the 2.5 billion people who use Unilever’s products each day, which ultimately determines the company’s profitability, and hence its share price. It may have a short term impact on demand for the shares however, as institutional investors may have to shuffle their decks a bit.

If Unilever leaves the FTSE All Share, some UK funds may sell up. Unilever intends to maintain its premium listing on the London Stock Exchange, and in any event there’s a provision within industry sector rules for UK funds to hold up to 20% of their portfolio overseas, so genuinely active managers could happily hold on to Unilever in this scenario. However benchmark huggers, or closet trackers as they are less than affectionately known, would likely sell out because they are supremely concerned with risk against the index. Genuine UK tracker funds would definitely sell out of Unilever if it left the FTSE All Share Index. However there will be an opposite effect as European tracker funds would need to add to their exposure if the full value of the company is then reflected in a higher weighting in European indices.

In theory any distortion of the share price resulting from these flows that either undervalues or overvalues Unilever as a company would be met by active investors buying or selling stock to take up the slack. However markets aren’t perfectly efficient, so in the short term this could lead to temporary pricing blips, though these shouldn’t concern long term investors. Ideally Unilever would like to have its cake and eat it, by staying in both European and UK indices, though the decision ultimately lies with the index providers. This pops the ball firmly in the court of FTSE Russell.’

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