It’s been in the pipeline for a while. But this morning consumer goods giant Unilever (LSE: ULVR) admitted that plans to simplify its corporate structure are almost certain to mean that it will leave the FTSE 100.
In this piece I’ll explain what today’s news means for UK shareholders and give my view on whether any action is required. I’ll also update my rating on this popular income stock.
What’s changing?
When UK soap manufacturer Lever Brothers merged with Dutch firm Margarine Unie to form Unilever in 1929, both companies maintained their domestic stock listings. This is why Unilever has always had two listed holding companies, one in London (Unilever plc) and one in the Netherlands (Unilever NV).
In the wake of US firm Kraft Heinz‘s failed 2017 bid for Unilever, the group’s board decided to review this unusual corporate structure. Today’s long-awaited decision is the end result.
The firm’s two listings will be combined into a single holding company, New Unilever NV. This will be incorporated in the Netherlands and have a primary listing on the Amsterdam stock exchange, with a secondary listing in London.
What will happen to my UK shares?
Although Unilever plans to retain a premium listing on the London Stock Exchange, it is expected to leave the FTSE 100. Instead, it will belong to the equivalent Dutch index.
Dutch and UK shareholders still need to vote to approve these changes. But I suspect Unilever’s board would not have published these plans if it wasn’t confident of shareholder support.
If the change goes ahead, shareholders with UK-listed Unilever plc shares will have their shares cancelled and be issued with an identical number of New Unilever NV shares. This should happen automatically once the changes have been approved.
Does any of this matter to me?
Bosses point out that the firm’s Dutch arm is 22% larger than its UK business and that more of its shares are traded in the Netherlands. So the shift makes sense, they say.
In any case, for most UK shareholders nothing will really change. Although a few fund managers may not be able to hold non-FTSE 100 stocks, Unilever expects that the majority of institutional shareholders will remain invested. I don’t expect the Unilever share price to be affected by these changes.
For private investors in the UK, there should be no problem. When the new shares start trading on 24 December, they will be bought and sold in exactly the same way as the current plc shares. There will be no extra cost or lack of liquidity.
Dividends will also be unchanged. The total number of shares will remain unchanged, so earnings per share should be the same. The company’s dividend payout policy isn’t changing and UK shareholders will continue to receive their dividends in sterling.
Keep buying?
In my view, there’s no reason for UK shareholders to change their view on Unilever.
The consumer goods group’s share price has slipped lower recently, pushing the stock’s yield up to about 3.2%. Although I’d prefer to receive a yield that’s closer to the FTSE 100 average of 4.1%, I think Unilever’s long history of profitable growth deserve a small premium.
With earnings expected to rise by 10% next year, I’d rate the shares as a long-term buy at current levels.
