In matters of commerce the fault of the Dutch

Is offering too little and asking too much*

It ought to be a long, hot summer for the directors of Unilever, that essential ingredient in every sensible UK investor’s portfolio. They are trying to unify the group’s unusual Anglo-Dutch share structure, but the way they are going about it is causing resentment and risks doing material harm to holders of Unilever plc.

In principle, merging the two classes of share makes sense. It overcomes any conflict between them, helps the use of new shares for purchasing businesses and reduces costs. The other Anglo-Dutch giant, Royal Dutch Shell, recently managed to merge without fuss. By contrast, Unilever’s proposal guarantees trouble.

If the plc shareholders approve, Unilever would cease to be a British company as generally defined, since it would be registered and listed in Holland, with headquarters in Rotterdam. The original press release in March rather gave the game away. After some boiler-plate guff about “building the Unilever of the future” and soothing noises about the importance of UK manufacturing businesses, the intended move was presented as almost a routine tidying up operation, replete with the usual adjectives about being more agile, more focused, more strategic flexibility, etc.

For plc shareholders, it is nothing of the kind. While the move may make sense corporately, we are being forcibly switched from the UK share into a Dutch one. Despite pressure from the company, the compilers of the FTSE100 index have resisted waiving the rules to keep the share in the index. Sensibly, they have concluded that Newnilever NV would be no more a British company than, say, IBM or Ford.

As a result, some funds would be obliged to sell their plc shares to stay within their mandates. For the others, shunted onto the new register, there remains an awkward question about the 15 per cent with-holding tax on dividends from Dutch shares. The Dutch government has pledged to scrap this from 2020, but its position is not secure, and already there are rumblings about giving tax cuts to foreign investors. The cost of a tax-inefficient dividend would dilute the gains from unification, while a pledge in a company press release to deal with the problem is hardly a long-term commitment.

There is much at stake here beyond losing a major constituent of the FTSE100. However international the investment professionals consider themselves, the majority of UK shareholders tend to buy domestic shares for their portfolios. We may be a dwindling band, but the plan requires a 75 per cent majority of votes cast to proceed.

Together the individuals who own shares through Hargreaves Lansdown, Rathbones or Alliance Trust (for example) speak for several per cent of the plc votes. Two of the top 10 shareholders have signalled serious doubts about it, while other institutions are unconvinced. If individuals can harness their votes, they can defeat this proposal.

It does look suspiciously like a coup, organised by a CEO who is about to retire, to deliver the business into Dutch hands, safe from the possibility of takeover, and less visible to the critical British financial press. So here’s the question for the plc shareholders: is this proposal really in my interests, or just those of the board?

*George Canning 1826


Another profit warning from McCarthy & Stone. The CEO is retiring, although probably not to one of the company’s retirement homes. The stagnant housing market is blamed, since the last-time buyers that are McCarthy’s market are finding it harder to sell their old home.

Yet there is a deeper crack in the business model. Waving goodbye, the CEO now expects profits between £65 and £80m. In December, he estimated that sales of ground rents would  generate £33m this year, as he lobbied to be exempted from the proposal to ban them.

Long leaseholds make sense for flats, but there is no convincing case for them on sales of new houses, least of all to the elderly and vulnerable. Ground rents skim off value and complicate secondary sales, giving the (often shadowy) holders unreasonable power. Banning them removes one way that buyers of retirement homes can be confused,  and helps keep McCarthy and Stone honest. Bad news for the share price, though.

This is my FT column from Saturday.