Consumer products giant Unilever (LSE: ULVR) has chosen the Netherlands for its single corporate headquarters, in a move that has had critics of Prime Minister Theresa May’s Brexit strategy claiming it’s a sign of lack of confidence in post-EU Britain.
Unilever, however, says the move is nothing to do with Brexit, and is just a simplification of its current dual-company structure. Although it operates as a single business with a single management team, it actually exists as two separate companies — one currently based in London and one in Rotterdam.Â
I reckon a unified corporate entity makes a lot more sense. But why the Netherlands and not Britain? The group says it’s simply because the Rotterdam shares account for 55% of its combined share capital and trade with greater liquidity, which sounds fair enough.
There’s going to be some divisional restructuring, with the creation of Beauty & Personal Care, Home Care, and Foods & Refreshment divisions. The first two will be headquartered in London from where those businesses are already managed, and the Foods & Refreshment business will continue to be run from Rotterdam.
Change?
What practical difference does this all make for the purveyor of such quintessentially British brands as Marmite and Lipton? None that I can see.
The company says there will be no change in its employment patterns, with the current 7,300 employees in the UK and 3,100 in the Netherlands being unaffected.
And for shareholders, each share they currently hold will be replaced with a share in the new combined company, with Unilever retaining listings in London, Amsterdam and New York.
The removal of the dual nature of the company could even streamline management actions and provide a bit more flexibility, with chairman Marijn Dekkers saying: “The move to three Divisions and the simplification of our corporate structure will create a simpler, more agile and more focused company with increased strategic flexibility for value-creating portfolio change.“
The share price dropped a fraction in early trading, which is within regular minor fluctuations, so the markets don’t appear fazed by the news.
Great investment
Unilever is a major multinational, selling its products in almost every market in the world, and which side of the North Sea it chooses for its arbitrary legal base makes no practical difference whatsoever.
In fact, the company typically gets only around a quarter of its annual revenue and profit from the whole of Europe (including the UK) anyway, with about a third coming from the USA.
The rest of the world, led by Asia but with significant sales in the Middle East and Africa, accounts for the remaining 40-something percent of business. And though we may think of Unilever in terms of popular UK brands, it’s responsible for dozens of products that don’t appear on these shores — ever heard of Tortex, Kecap Bango or Grom?
I see the investment case for Unilever as completely unchanged. The company has been enjoying steadily-rising earnings for years, and it’s been lifting its annual dividend accordingly. In fact, Unilever looks like a great hedge against inflation.
Dividends are yielding around 3.5% and better, and when you include share price gains, shareholders have enjoyed total returns of around 60% over the past five years (and even more if they reinvested their dividends).