Investors should not despair – Unilever can still stay in the FTSE 100

The Rotterdam HQ of the Anglo-Dutch household goods giant, where it can enjoy advantageous Dutch laws while still remaining in the UK organisation that administers the share index

Weird and weirder, are the goings-on at Unilever.

First, the Anglo-Dutch household goods giant announces it wants to base itself in just one of those two countries: in Holland. Fair enough. Such convoluted structures are anachronistic, and expensive – owing more to history, in this case 89 years, rather than commercial logic.

But Unilever does not spell out the exact reasons why it wants to make the move, tending towards the opaque in its utterances.

According to chief executive Paul Polman, the decision to create one legal entity headquartered in Holland was taken for “technical reasons” and to make the company “more agile”. The City saw it more clearly, persuaded that the Dutch location allowed it to take advantage of laws that favour the defender in takeover bids – having previously almost been caught in the sights of a possible merger in the UK.

Normally, companies put their shareholders first, in which case Polman and his cohorts should realise that many investors, despite their assurances of loyalty, like to see some speculation about being taken over one day built into the share price. It does not do any harm to suppose that someone might come along and have a crack – it keeps the stock bubbling nicely. But not if the company is going to be incorporated in not so bid-friendly, not so fizzing Holland.

Despite the company’s strong protestations, inevitably there is also a strong whiff of a reaction to Brexit in the air. Polman is a strong Remainer. The notion of his corporation somehow straddling both camps, in Brexit Britain and Remainer Netherlands, is not only difficult to contemplate in management terms, but must also be anathema to the Unilever boss. He’s picking up his bag and leaving.

Of course, he’s making sure he’s leaving plenty behind, so as not to provoke an almighty row between the Brits and the Dutch, with Unilever stuck in the middle. So there are sweeteners galore, aimed at softening the blow and placating the UK government, politicians, unions and media.

What’s most odd, though, is that Unilever does not seem to have sounded out the authorities as to what the decamping will mean for its FTSE 100 membership. Odd, because Unilever is usually the most cautious of companies. It’s not as if this switch was sudden – it had been mooted for several months. Yet, Unilever, if its investors are to be believed, is keen to tell them it’s up to them to ascertain the ramifications.

On the face of it, the locating of a domicile overseas should signal game over where the FTSE 100 is concerned. This would see the trackers and exchange-traded funds, or ETFs, the institutions that hold shares in every FTSE 100 constituent, being forced to dump their investments – and pushing down the Unilever share price. Cue fury among the Unilever shareholders.

And the bit I’ve not declared is that these are people who require wooing, not antagonism. For Unilever’s shift to go through, it needs the approval of 75 per cent of the UK shareholders.

To try and win them round, in again an uncharacteristically brazen gesture, Unilever promises a £4.3bn share buyback. They aren’t too impressed, with more investors coming forward to say they will vote down the Dutch deal.

Then comes another twist. It emerges in Holland that the premier, Mark Rutte, is prepared to scrap the country’s dividend tax to bring the company across – a ploy regarded as “decisive” in influencing the firm’s choice, according to leaked memos.

Now the Brexit blue touch paper is lit. A Remainer CEO wants to desert Britain to be with his Remainer chums in the EU, who will stop at nothing to smooth his step. Not only do they have takeover laws that form an effective protectionist shield, contrary to the single market free transference ideal, but now they’re willing to skew their tax code as well. These Dutch Remainers are playing dirty, doing anything to call one of the world’s biggest companies their own.

Unilever may be offering all sorts of goodies to Britain, but the reality is laid bare by the Dutch desire to land their prize. It’s a fillip to their economic prestige, and a kick in the teeth for Britain’s. A company that can trace its roots right back to the foundation of Lever Brothers and the production of soap, is upping and leaving – and its chosen destination is making doubly sure it jumps.

The harm to the UK, symbolically, is significant. But the damage it does to the City of London’s claim to be a global money magnet, the number one site for corporate capital-raising, and to its famous list of shares, is arguably much greater. Just as the Square Mile faces an uncertain Brexit future, fending off challenges from wannabe leaders in EU centres and elsewhere, comes Unilever’s vote of no confidence.

There is, though, an overlooked factor, one that an alliance of annoyed shareholders and impassioned Brexiteers could seize upon: there is no reason why the company cannot hang on to its place in the FTSE 100.

Whether it leaves the FTSE 100 or must go is entirely at the discretion of FTSE Russell, the organisation that administers the share index. There are precedents for companies no longer incorporated in the UK being allowed to remain on the big board. British Airways is now part of IAG, headquartered in Spain – IAG is part of the FTSE 100. The holiday operator, TUI, better known as First Choice, is run out of Germany – TUI is part of the FTSE. Commodities titan, Glencore, is based in Switzerland – Glencore sits proudly in the FTSE 100.

Unilever can depart, or at least have a head office in Holland, and be legally located overseas. It can enjoy the Dutch takeover defences, and luxuriate in a country free of a dividend tax. And its chief can feel comfortable in the EU, among his Remainer friends. But Unilever can still be a FTSE 100 member, still supported by the trackers and ETFs. And London can look the same as it did before – albeit minus a brass plate bearing Unilever’s name. Even the most ardent Brexiteers can surely live with that.

Investors, politicians, commentators – they need to make their feelings known to FTSE Russell. All is far from lost.

Chris Blackhurst is a former editor of The Independent, and executive director of C|T|F Partners, the campaigns and strategic communications advisory firm