City of London (CTY) has confirmed they will vote against consumer goods firm Unilever (ULVR) in its intention to de-list from the London Stock Exchange and re-locate its headquarters to the Netherlands.
Shareholders will vote at an extraordinary general meeting on 26 October over whether the firm will be allowed to “simplify” its corporate structure under a single holding company, New Unilever (NV), rather than retain its dual-listing in both London and Rotterdam. Unilever needs approval from 75% of its London-based shareholders.
Janus Henderson, the asset manager that runs the investment trust, will not publicly oppose the proposal, as one of its fund managers supports it. But most of its fund managers are against the decision, and Job Curtis says his Morningstar Gold Rated City of London will oppose it.
Curtis says the Domestos and Magnum owner will ultimately lose the vote, given the high watermark needed. However, he admits the company will stay in his top 10 list of holdings whichever way the vote goes.
On the move itself, Curtis suspects the move it partly motivated by the chance to “hide behind a more protective regime” in the Netherlands. “I’m all for taking a longer-term approach with companies, but ultimately I do believe in the Anglo-American system of corporate control," he explains.
He also fears for the dividend. Currently, dividends paid to foreign investors is subject to a 15% “withholding tax” in the Netherlands, which the likes of Unilever and Royal Dutch Shell (RDSB) get round by dual listings.
The Dutch Government has pledged to remove this from 2020, but the legislation has not been passed yet and the Government has a small majority. Curtis isn’t convinced the repeal will go ahead.
Despite being in the AIC UK Equity Income sector, City of London has the luxury of being able to hold up to 20% of its assets in companies listed outside of London. To date, it has 11% allocated to overseas markets, so can easily afford to move its 2.9% holding in Unilever over to that list.
That’s what Curtis plans to do. “We will carry on holding it, but I would be annoyed if I was running a UK-only mandate,” he admits. “Effectively it’s like a takeover without any premium. You’re basically forced to sell your stock at a time not of your choosing without any premium.”
Curtis’s bullishness on “the secular growth of emerging markets longer term, as vast populations lift themselves out of poverty” is a key reason he likes Unilever. Around 60% of its turnover comes from emerging market countries.
Dissenting Voices Rising
Nick Train, manager of the Gold Rated Finsbury Growth & Income (FGT), was one of the first shareholders to raise doubts over Unilever’s plan. And he’s been joined by others, including Schroders, Aviva and Legal & General.
Last week, Sacha Sadan, director of corporate governance at LGIM, said his firm had asked Unilever “to ensure that any approach they take safeguards the ability of our clients to maintain their investment and benefit from Unilever’s continued success”.
“We understand Unilever has explored a number of alternatives in reaching its final decision. However, we do not believe Unilever has made a compelling case for many PLC shareholders to support the recommendation… therefore we intend to vote against Unilever’s proposed resolution.”
Meanwhile, retail stockbroker The Share Centre wrote an open letter to Greg Clark MP, Secretary of State for Business, complaining that “Unilever is seeking to deny nominee shareholders’ right to be individually counted”.
Votes from PLC shareholders that own shares through a broker will not be counted unless they are converted into certificate form. But The Share Centre says this is impractical in the time available, and cannot be done from tax-incentivised accounts such as ISAs.
“It is unacceptable for Unilever to ride roughshod over the rights of nominee-based shareowners,” says Gavin Oldham OBE, chairman at The Share Centre.
“We will continue to work with other interested parties to ensure that Unilever recognise the very large numbers of personal investors taking an active interest in the future of their company.”
But some do support the move. Sellside broker UBS thinks Unilever has made a convincing case for why it should unify the two share classes. It also believes Unilever’s proposed corporate governance changes are positive for shareholders, while noting the firm has taken steps to address other issues, like dividend withholding taxes.
“Overall, we consider the proposed changes as value-enhancing for Unilever,” concludes analyst Pinar Ergun.
