UKX FTSE 100 Index

By Carol Ryan 

An antiquated corporate structure isn't the only thing that needs fixing at Unilever, but it's a start.

The maker of Ben & Jerry's ice cream and Hellmann's mayonnaise said Thursday that it wants to scrap its separate Dutch and British companies in favor of a single U.K. business. Currently, investors can own stakes in one of these two legal entities under an arrangement dating back to the 1930 merger that created the company.

Unilever says that the twin structure leaves it at a disadvantage to competitors like Nestlé and Procter & Gamble in deal making. Granted, the setup hasn't prevented the company from making 35 acquisitions and 14 disposals since 2015. But it is harder for Unilever to use equity to pay for assets. Demergers are also knotty.

The pandemic is one reason to revisit the idea. New consumer buying trends may make parts of Unilever less attractive: Its large ice-cream division and out-of-home food brands are likely to face pressure for some time as more meals are taken at home, for instance. The company's food business shrank in the first quarter, even as Nestlé and U.S. peers benefited from consumer stockpiling.

A window for pulling off a legal restructuring is also closing. Once the Brexit transition period between the U.K. and the European Union ends in December, the company would need to find an alternative to an EU cross-border merger.

Management needs to avoid an embarrassing repeat of its 2018 attempt at an overhaul, which was derailed by a number of U.K. institutional investors. Plans to base the company legally in the Netherlands would have caused the stock to drop out of the FTSE 100 index, forcing some shareholders to sell.

This time, the company will fall out of the Euro Stoxx 50 index, but any angry shareholders in the Dutch entity will have less power to scuttle the move. Unilever only needs 50% of them to approve, compared with a 75% threshold on the U.K. side of the business.

Legal change may be a prerequisite for more radical transformation at Unilever. At least the chances of getting it past shareholders are higher this time round.

Write to Carol Ryan at carol.ryan@wsj.com

(END) Dow Jones Newswires

June 11, 2020 09:43 ET (13:43 GMT)

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