UN Unilever NV

By Saabira Chaudhuri and Costas Paris 

LONDON -- Unilever PLC will consolidate its dual headquarters in Rotterdam instead of London, a politically charged decision that came despite last-minute lobbying from the British government.

The decision, pending for months, has taken on outsized 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.

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

Unilever, the maker of Magnum ice cream and Hellmann's mayonnaise, said Thursday the move wasn't based on Brexit concerns, and that it wouldn't significantly impact jobs, taxes or investment plans. The decision may cost Unilever its place in the FTSE 100, Britain's blue-chip index, the company said. It is currently the 14th largest component of that globally followed index.

Unilever's announcement Thursday came alongside details of a broader restructuring of its operations into three divisions with separate headquarters that will shrink its corporate center and give its businesses more dedicated resources. Its beauty and personal care business, as well as its home care unit, will be based in London. Its foods and refreshment division will continue to be based in Rotterdam.

The Wall Street Journal previously reported the company's board had decided on the Dutch city. The change is expected to be completed by the end of the year.

Unilever had for months wrangled with the question of where to situate a combined company after deciding it would collapse its dual British-Dutch legal structure into a unified one. It 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.

Unilever's finance chief, Graeme Pitkethly, said Thursday the deciding factor hinged on the fact 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.

Unilever Chairman Marijn Dekkers said the decision was a complex one, and that executives and directors had to consider a number of knock-on ramifications. "The unraveling of the situation is enormously complex, all of that needs to be planned out," said Mr. Dekkers.

According to a person familiar with the matter, Unilever took into account issues related to Brexit, as well as a concerted charm offensive by Dutch Prime Minister Mark Rutte, a former Unilever executive.

"There were dissenting voices" over the Rotterdam decision, "but no convincing cases for a stay," this person said.

British government officials were talking to Unilever throughout the process, but toward the end those talks centered on containing job losses and choreographing statements that could minimize any reputational damage to London, according to the person familiar with the matter.

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 Britain, safeguarding jobs and investment. The company said Thursday it plans to continue to spend nearly GBP1 billion ($1.4 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.

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

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's Mr. Pitkethly, in an interview, said the company'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.

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 is still an open question, said Mr. Pitkethly. He said 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 09:05 ET (13:05 GMT)

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