UNILEVER: £100M BACKLASH BEGINS
Top investors line up to fight plot to move iconic firm to Netherlands
UNILEVER’S bid to ditch its UK headquarters faced a fullblown crisis last night.
Savings giant M&G Investments said it will oppose the firm’s proposal for a single legal base in the Netherlands.
Aviva Investors, Columbia Threadneedle and Lindsell Train – Unilever’s third largest shareholder in London – have already warned against the change.
It was also feared the move could land British investors with a £100million foreign tax grab.
Last night NFU Mutual became the first minor shareholder to break cover and oppose the proposal.
Unilever – the maker of household favourites like Marmite and Persil – wants to sever its links to Britain which have endured since Victorian times.
The change needs the backing of 75 per cent of investors who own shares through the London Stock Exchange at a crunch vote next month.
M&G – which looks after £285.8billion of savers’ cash and sponsors the Chelsea Flower Show – hit out at Unilever’s failure to consult shareholders. Head of corporate finance, Rupert Krefting, said: ‘We do not support Unilever’s proposal to redomicile to the Netherlands as the company has not adequately persuaded UK shareholders.’
It is feared British savers could be stung with a tax grab of more than £100million a year. Overseas investors face a 15 per cent ‘withholding tax’ on dividends under Dutch law.
If the UK office is ditched, British investors will become liable for Dutch taxes. An estimated 43 per cent of Unilever investors through the London Stock Exchange are British, according to Bloomberg, and last year they earned £645million in dividends.
If the tax had applied, they would have lost out to the tune of £97million.
The Dutch government pledged to scrap the tax in 2020 but there are fears it could be kept after all. Unilever claims to have found a way that would allow British investors to carry on getting payouts without paying the tax.
But investors fear the Dutch authorities could close the loophole. NFU Mutual, which is among the top 60 shareholders in Unilever, said it will vote against the plans.
A spokesman said: ‘We see no benefit to our investment if the vote is passed.’
Several stock market tracker funds could vote against the plan too. Many of these funds seek to follow the performance of the FTSE 100 index of British firms. Unilever will be kicked out of the FTSE 100 if it closes its UK HQ – meaning these tracker funds will have to sell their stakes.
A Unilever spokesman said: ‘It is anticipated that Dutch withholding tax will be abolished on January 1, 2020.If it is not, shareholders would receive dividend substitution payments free of Dutch withholding tax for a considerable period of time.
‘In addition, the Board would also consider alternative structures or measures to mitigate the impact of Dutch withholding tax.’
ANOTHER day, and another key element of our industrial heritage finds itself under threat. Confirmation that the mighty firm of Unilever, an icon of Britain’s corporate landscape, is planning to ditch its headquarters here in favour of a single base in Rotterdam is not just a concern for the City and its institutions. It would be a serious blow to our national pride.
If nothing else, the proposed move is the wake-up call that the Government needs to reassure UK-based companies that Britain is the best place in the world to do business. But will ministers take heed?
From its foundation as the soap maker Lever Brothers in 1885, Unilever built a deserved reputation for high-quality goods, social responsibility and ethical management.
Rooted in Christian idealism, William and James Lever’s treatment of their workforce at the Port Sunlight factory on the Wirral — fair pay, good housing and the provision of leisure facilities — became a beacon for compassionate capitalism.
Reliability
After Lever Brothers’ merger with Dutch firm Margarine Unie in 1929 to create the behemoth Unilever, those high standards and rock-solid corporate reliability were maintained.
It might in reality be an Anglo-Dutch company that has acquired global brands, but we have come to think of so many of its products — from Marmite and Hellmann’s mayonnaise, to PG Tips, Persil detergent, the Dove beauty brand and Magnum ice cream — as quintessentially British.
The loss, however, of this cherished asset — the move is the brainchild of its £10 milliona-year Dutch chief executive Paul Polman — should be far more than a matter of wistful patriotic regret.
As the founder of Hargreaves Lansdown, one of Britain’s leading financial services companies, I fear it could cause real damage to our commercial base and our national investment system.
If Unilever shifts its domicile to the Netherlands, its shares will no longer qualify for the FTSE 100 Index in London. Institutional investors feel they are, in effect, being asked by Polman to collude in a Dutch takeover of Unilever.
This may ultimately depress the value of their shares as FTSE 100 tracker funds are compelled to sell their holdings. Understandably, many — including some of our biggest companies — are making their anger felt.
Over the years, Unilever has built up a wonderful track record of never cutting its dividends, which has made it an ideal investment for retirement. The company may not have offered exciting immediate yields or high instant returns, but it was hard to beat over the longer-term.
That is what made Unilever beloved of stockbrokers and fund-holders. Now, all that is at risk.
Polman, set to retire next year, says he wants to simplify the firm’s structures with one corporate HQ (currently there are two, in London and Rotterdam), reducing bureaucracy and duplication.
In theory, I agree. Having more than one HQ dissipates a unifying sense of purpose and means executives waste far too much time shuttling between organisations.
But why on earth has he chosen the Netherlands rather than Britain?
This country should have been the obvious choice. Apart from its history here, 60per cent of Unilever’s sales originate from the UK, while English, the global language of commerce, gives us a huge competitive advantage, especially in the emerging markets of Asia and Latin America, where Unilever household and beauty products are becoming popular.
The pro-EU brigade will insist that Polman’s choice was driven by Brexit. According to their narrative, the Leave vote has left Britain hopelessly cut off from Europe, so more moves like Unilever’s are inevitable. But this is a warped analysis based on politicised wishful thinking.
The probable reason lies in the chief executive’s instinctive preference, as a Dutchman, for his homeland over Britain and for the Dutch model of capitalism.
It provides greater protection against predatory bids by foreign firms, and after a brutal takeover attempt of Unilever by global giant Kraft Heinz last year, Polman has good cause to be wary of similar initiatives that the more open market in Britain encourages.
But he will also have been heavily influenced by the Dutch government’s recent decision to agree in principle a more welcoming tax environment for corporations, particularly through a reduction in the taxation of shareholders’ dividends.
In fact, the Dutch tax changes planned for 2020 — bringing the country’s tax structure into line with that of other more tax-friendly countries, including Britain — were specifically intended to lure companies like Unilever.
Competitive
It may not be a coincidence that Mark Rutte, the prime minister of the Netherlands who initiated the changes, was a manager at Unilever before he entered politics.
Ministers here should take note: Britain may be losing one of its great companies because a Continental neighbour has adopted a more competitive corporate tax regime.
So how should we respond? How can we make Britain the place where the world comes to do business, while protecting our corporate heritage?
We know that corporate taxes and red tape shackle enterprise. And to be fair, this Government has taken some steps in this direction by lowering corporation tax to a record low of 19 per cent.
Contrary to the warnings of the doom-mongers who wailed about ‘giveaways to the superrich’, these tax reductions actually increased Treasury revenues, with corporation tax take rising from £44 billion to £58 billion over the past three years.
That’s all well and good. But to unleash commercial dynamism fully, I believe the Government should abolish corporation tax altogether. Employment and investment would soar and, instead of seeing companies making plans to leave Britain, I have no doubt that they would come flocking.
The knock-on effect, of course, would be that the accompanying explosion in wealth and job creation would generate increased revenues for the Government.
Prosperity
We are living in a much more fluid, globalised world. Capital can be transferred across the globe at a click of a mouse. Governments have to adopt radical new thinking if they want businesses to stay and flourish.
Whatever you think of Brexit, the fact is we are leaving the EU, so surely we should be pulling together to make a success of it.
I believe that Brexit offers a golden opportunity for a major reset on our national approach to taxation and enterprise. It is through the embrace of the global free market that real prosperity lies — if only Westminster and Whitehall would seize the moment.
Sadly, I fear it may come too late to save Unilever for Britain. The shareholders’ meeting is next month and, despite the signs of revolt, the board will be determined to ram through the Chairman’s flawed plan.
Ironically enough, my own company might nominally benefit, for if Unilever goes, we will move up one place in the FTSE 100 Index pecking order. But really I want Unilever to remain where it was born.
Leaving the EU should give us new opportunities to export and trade with the world, but we will only succeed if we are fit, ready and business-friendly.
That’s why the Government should be working night and day to encourage and empower the thousands of businesses which will drive Britain forward in the years to come.