WHEN British soapmakers merged with Dutch margarine merchants to form Unilever in 1929, the logic was clear. Both firms shared a key ingredient, animal fat, and were starting to step on each other’s toes as they diversified. Unilever is one of the world’s largest consumer-goods firms. A dual-nationality company, it has headquarters in both Britain and the Netherlands and is regarded as a national treasure in both places.
Before the month is out, however, it is expected to plump for Rotterdam as its sole headquarters (Britain’s quandary over Brexit is doubtless a factor). It is not alone in rethinking its arcane arrangement. According to FTI Consulting, a business-advisory firm, of the 15 companies that have used a “dual structure” at one time or other over the past 25 years, only six remain. Some, such as Royal Dutch Shell, an oil giant, unified their structures in the mid-2000s. RELX, an Anglo-Dutch publishing firm, did so last month. BHP, an Anglo-Australian mining firm, faces investor pressure to do the same.
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“Siamese twins” are typically the result of cross-border unions. Two firms agree to operate as a single enterprise, but remain incorporated and retain distinct share listings in their home countries. The shares of Unilever NV, the firm’s Dutch arm, for example, cannot be exchanged for those in Unilever PLC, its British sibling. (In contrast, many companies choose to cross-list on multiple stock exchanges, which allows investors to buy exactly the same shares in different marketplaces.)
Dual structures used to have several attractions, says Mathijs van Dijk, of the Rotterdam School of Management. Normal mergers could incur capital-gains tax, which retaining distinct companies avoids. Regulators were thought to look benignly on unions that preserved firms’ national identities. The merged entity retained access to local capital markets, since institutional investors that were required to invest within their own countries would not be forced to sell.
Increasingly, though, investors have turned against them. A big driver is globalisation; fewer institutional investors are constrained by national borders. Perhaps reflecting greater integration within Europe, Unilever is the last European dual-structure firm standing; the others have British and Australian nationality (BHP and its fellow miner Rio Tinto), British and South African (Investec, a bank, and Mondi, a packaging firm), and British and American (Carnival, a cruise company).
Investors are also aware of the drawbacks of dual structures. They are confused by the differences between twins’ share prices, which can persist for years, Mr van Dijk’s research finds, though they are linked to the same cashflows. The structure is associated with opaque governance. After a scandal over misstated oil reserves in 2004 that was partly blamed on the complexity of its dual-board structure, Shell’s investors lobbied for unification. Elliott Advisors, the hedge fund agitating for BHP to unify, argues that the dual structure limits dealmaking by complicating the use of shares for purchases. Unilever cites this as a factor, too; it wants to be able to strike deals to boost its shareholder returns. Although its choice may irk British politicians, investor logic prevails.