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Unilever Nixes Controversial Restructuring Plan

POSTED ON Oct. 10, 2018

Unilever won’t be restructuring its almost 90-year-old dual-entity structure under a Dutch parent after all, the company’s board decided in an abrupt about-face that occurred several weeks shy of a shareholder vote on the plan. 

Just five days after Unilever confirmed several governance matters in connection with the simplification plan, which was unveiled in March, the Anglo-Dutch consumer goods company announced October 5 that its board has nixed the plan altogether. The plan, which the board had expected would create a more competitive company and equalize shareholder input, has been criticized by stakeholders. 

Unilever stood to lose its place in the Financial Times Stock Exchange U.K. Series Index as a result of the plan. That would have forced some institutional investors to reshape their portfolios or sell their Unilever shares, company Chair Marijn Dekkers said in a September 25 op-ed in The Telegraph

“We recognize that the proposal has not received support from a significant group of shareholders and therefore consider it appropriate to withdraw,” the company said in an October 10 release. The board still believes that simplification of the company’s dual-headed structure would provide opportunities to accelerate value creation and serve the long-term interests of Unilever, Dekkers said. 

The plan coincided with a proposal by the Dutch government to repeal the country’s 15 percent withholding tax on dividends, as well as scheduled reductions in the country’s corporate tax rate. Unilever CFO Graeme Pitkethly said in a September 11 webcast that the repeal’s failure is unlikely, but that if it does fail, Unilever will offer a substitution payment to shareholders. 

The company didn’t respond by press time to a request for comment on whether it still has a contingency plan. It said it will proceed with its plan to cancel Dutch preference shares, a move designed to better align shareholders’ economic interests and voting rights. 

The board’s decision came several weeks before shareholders of both the Dutch and British arms of the company were scheduled to vote on the simplification plan. Dekkers said in the op-ed that he realized not all shareholders were supportive. David Cumming of London-based Aviva Investors, a major investor in Unilever’s British shares, told BBC4 TodaySeptember 25 that there was nothing in the plan for U.K. shareholders. “There’s downside with no upside,” he said. 

Unilever’s dual-entity structure isn’t unique. Royal Dutch Shell PLC, which started as an Anglo-Dutch entity in 1907, didn’t unify under its current U.K. parent until 2005. The company said late last year that if the Netherlands repeals its dividend withholding tax, its board will consider simplifying its capital structure

The Dutch government announced the withholding tax repeal September 18 in conjunction with its 2019 budget. The proposal was ostensibly designed to attract foreign investment as Brexit approaches, though some have speculated that the revocation of the tax is a response to claims that the Dutch withholding requirement violates EU law.