UL Unilever PLC

By Saabira Chaudhuri and Costas Paris 

LONDON -- Unilever PLC has decided to consolidate its dual headquarters in Rotterdam over London, a politically charged move that came despite last-minute lobbying from the British government.

In a Wednesday board meeting, directors decided on the Dutch city but Unilever executives were still receiving calls from the U.K. government into the night, according to a person familiar with the matter.

The company's announcement early Thursday came alongside details of a broader restructuring of its operations into three divisions with separate headquarters. Beauty and personal care, as well as a home care unit, will be based in London, while its foods and refreshment division will continue to be based in Rotterdam.

Unilever had for months wrangled with the question of where to situate the combined company. The maker of consumer products such as Magnum ice cream and Hellmann's mayonnaise currently splits its headquarters between London and Rotterdam. That is a legacy of its dual structure, which essentially consists of two separate British and Dutch operating companies, each with its own shares.

The decision has taken on great significance in the U.K., which is in the process of negotiating its exit from the European Union. Critics of that move -- triggered by a 2016 referendum -- have warned the split from the EU could force some big companies to move to mainland Europe.

Unilever's finance chief, Graeme Pitkethly, said Thursday that Brexit wasn't a factor in the decision to choose the Netherlands. Unilever's decision reflected that shares in the Netherlands entity made up about 55% of the combined ordinary shares for the group and that these trade with greater liquidity than shares in the U.K. entity, he added.

The company plans to continue to spend nearly GBP1 billion annually in the U.K. including on research and development. The 7,300 people it employs in the U.K. and the 3,100 people in the Netherlands won't be affected by the changes.

A U.K. government spokesman said the company had shown its long-term commitment to the country by locating what the government called its two fastest-growing divisions in the U.K., safeguarding jobs and investment.

However, Rajesh Agrawal, London's deputy mayor for business, described the move as "clearly disappointing news for the capital."

Unilever shares fell about 1% in London and 0.7% in the Netherlands in early trading, with analysts saying the move shouldn't have a major impact for investors.

Following an unsolicited takeover approach by Kraft Heinz Co. early last year, Unilever launched its review of that structure and determined that unification was in the best interests of the company and shareholders.

The company said the simplified structure will give it more flexibility to make portfolio changes and help long-term performance. It expects to make the change by the end of the year.

The news on its legal base confirms a Wall Street Journal article Wednesday that said the company's board had decided on the Dutch city.

Critics of Unilever's current structure have complained it is unwieldy and can interfere with deal making -- including by hindering the company's ability to use stock to make big acquisitions. The shares of the two operating companies, Unilever PLC and Unilever NV, aren't convertible and the value of a single share in each company must remain equal. That makes it tough to issue new stock to fund a deal.

Unilever Chief Financial Officer Graeme Pitkethly in an interview said Unilever's approach to acquisitions won't change following its move to simplify its structure. The company has in recent years favored small to midsize deals. But the new structure gives Unilever the "strategic flexibility to act should the opportunity arise," he added.

However, some analysts have questioned whether the company would ultimately use equity to fund a deal.

The move to three divisions each with its own separate headquarters will reduce centralization because each one will get its own specific, tailored resources rather than sharing central ones, said Mr. Pitkethly. It is part of a broader effort by Unilever to push more resources to local markets and resembles changes made by its sprawling rivals also seeking focus as fast changing shopper behavior, the advent of e-commerce and increasingly sophisticated local competition cap growth. Reckitt Benckiser Group PLC, the owner of Durex condoms and Finish dishwasher tablets, last year said it was splitting into two divisions. Nestlé SA recently said its baby-foods business would be regionally rather than globally managed.

Unilever plans to maintain listings in the Netherlands, the U.K. and the U.S. and will remain subject to British and Dutch corporate governance codes. Whether it will remain a component of the FTSE 100 depends on the exchange but Mr. Pitkethly noted that current practice wouldn't allow Unilever to keep its place. The London Stock Exchange didn't immediately respond to a request for comment.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

March 15, 2018 06:19 ET (10:19 GMT)

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