Unilever's About-Face on London Base Leaves Polman in Limbo

(Bloomberg) -- Unilever abandoned a plan to leave the U.K. for a single headquarters in the Netherlands after shareholders rebelled, torpedoing Chief Executive Officer Paul Polman’s effort to reshape the company through dealmaking.

The about-face follows mounting opposition from fund managers at Columbia Threadneedle, Legal & General Investment Management, Schroders and other firms, which faced having to sell Unilever shares once the company dropped out of benchmark U.K. stock indexes. The company’s U.K.-listed shares fell as much as 1 percent early Friday.

“This is somewhat humiliating -- or at least humbling -- for CEO Paul Polman, and may accelerate his retirement from the company,” Investec analyst Eddy Hargreaves said in emailed comments. The maker of Ben & Jerry’s ice cream and Dove soap had previously begun a search for a successor to the chief, who is Dutch and has served as CEO since 2009.

Unilever said when it announced the move in March that a single Dutch base would give it more flexibility to “undertake major M&A” using the stock or disposing of parts of the business. Like other consumer-goods giants, the company is wrestling with slow growth of some of its mainstream brands, which also include Lipton tea and Axe deodorant.

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The decision hands a much-needed political win to Prime Minister Theresa May as she tries to stem a corporate exodus after the Brexit vote. While the company had insisted that the move was not tied to the U.K.’s plan to leave the European Union and wouldn’t affect employment meaningfully, the planned departure was a symbolically significant blow to May’s vision of an outward-looking post-Brexit economy. Unilever operates in 190 countries and has kept dual headquarters since its creation from the 1930 merger of Margarine Unie of the Netherlands and U.K. soapmaker Lever Brothers.

Mayor’s Tweet

“Despite the government’s appalling mishandling of the Brexit negotiations, the capital will always be one of the best cities in the world in which to do business,” London Mayor Sadiq Khan, a member of the opposition Labour Party, said on Twitter.

Leaving the London headquarters would almost certainly have eliminated Unilever’s membership in U.K. benchmark stock indexes. That posed a problem for British investment funds, which would have been required to sell their holdings, potentially tying Unilever up in controversy over compensation for any losses. Shareholders were set to vote on the plan at the end of the month.

“There was no serious rationale for choosing the Netherlands rather than Britain,” Robert Lloyd, fund manager at Blue Whale Capital, said in emailed comments. “London has an open free market and has been a leading financial center since the 19th century.”

Read more: Unilever Reversal on Dutch Base Deals Blow to Premier Rutte

The move to a single Dutch base could have afforded Unilever greater protection against takeovers, after the company fended off an unwanted approach from Kraft Heinz Co. last year.

Consolidating under one roof was intended to give the company strategic flexibility to undertake major deals using its stock, or perhaps divest parts of the business, Chief Financial Officer Graeme Pitkethly said last month. Withdrawal from the plan may mean that large deals are off the table until the company details its next steps, Deborah Aitken, a Bloomberg Intelligence analyst, said in a note.

Shareholder Opposition

Despite Unilever’s efforts to rally support for the plan, investors representing 10 percent or more of the company’s shares outstanding pledged to vote it down, with new names joining the dissidents almost daily over the last few weeks.

“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 a statement.

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