(Update) Unilever’s battle to convince private investors to back the move of its UK headquarters to the Netherlands has received a further blow with the popular City of London (CTY) investment trust deciding to vote against the company.
Although Janus Henderson, the fund management group behind City, is a small investor in Unilever and is not adopting a group view on its controversial simplification plan, the opposition of its flagship investment is highly symbolic.
It comes as the Anglo-Dutch company battles to quell a rebellion, with an estimated 16% of UK shareholders set to vote against the proposed incorporation in Netherlands at a special ballot later this month. Analysis by Makor, an independent research group, suggests that as little as 17.5% of opposing shareholders could be enough to block the move because of the structure of the vote.
Job Curtis, manager of City of London, a £1.5 billion UK equity income trust which held 3.1% of its assets in Unilever at the end of August, expressed concern that the group was seeking protection from future bids by sheltering under the Netherlands’ tougher anti-takeover regime.
He also questioned whether dividend payouts to UK investors would become less attractive over time, an important point for City of London, which has achieved a record 52-year unbroken period of annual dividend growth.
Echoing the views of other dissident investment groups such as Aviva, Columbia Threadneedle, Legal & General, Lindsell Train, M&G, Schroders and Standard Life Aberdeen, Curtis (pictured) described the plan as ‘a takeover without a corporate premium’.
Curtis, who has managed City of London for 27 years, said: ‘It feels that they are out of touch with shareholders,’ adding, ‘they have not done their homework.’
It is feared that moving Unilever from the UK could force some UK funds to disinvest as the company drops out of the FTSE 100 index. This is not a problem for Curtis as City of London can invest up to 20% of its assets in overseas stocks and currently holds 11% outside the UK.
Unilever insists it needs to unify its corporate structure to cut costs, stay competitive and give itself the flexibility to make big acquisitions. Last year it fended off a hostile £115 billion bid approach from Kraft Heinz.
Three-quarters of Unilever’s UK share capital needs to vote in favour for the proposal to carry on 25 October. The company also needs a majority of UK shareholders present or represented at the meeting to vote in favour. So far 11% of UK listed shareholders have come out against the switch, with a further 4.7% seen as likely to reject it because of their investment mandates.
The impending vote has provoked a wider debate about whether institutional fund managers attach too much importance to stock market indices such as the FTSE 100 or FTSE All-Share.
Daniel Godfrey, a former investment industry chief, says in a letter to the Financial Times today: ‘Whichever indices Unilever may happen to inhabit are obviously irrelevant to the business and so they are irrelevant to end-investors. The security and retirement of the end-investor is dependent on business performance over decades, not the short-term performance of an index.’