By Nina Trentmann
The start of Brexit negotiations is putting pressure on U.K.
companies to set up shop in other European Union countries.
Britain's Prime Minister Theresa May plans to pull the trigger
on the nation's divorce from the EU later this month, prompting
firms to begin their own time-consuming and expensive
undertaking.
There is a great deal of uncertainty around the business
ramifications of the exit process. Companies could end up with an
U.K. entity post-Brexit that is unable to work, trade, or transfer
funds seamlessly across the continent. Many are already taking
steps to avoid that risk.
The Lisbon treaty, which governs a country's potential exit from
the EU, provides for a negotiation time of two years, which means
Britian's actual exit from the EU will take place in 2019.
But it's unclear if companies can avail themselves of the entire
two-year period, and if the EU will step up before Britain's exit
to craft a new trade deal that would enable companies to continue
trading with the EU without having to resort to World Trade
Organization rules.
Lloyd's of London, the specialty insurance provider, is looking
for a location for a new EU subsidiary. The company needs the new
unit because it will lose cross-border licensing rights after
Brexit. It plans to fold its non-U.K. offices in Europe into one EU
unit.
Lloyd's declined to offer financial specifics of a move, yet
plans to announce the location of a new EU subsidiary -- on top of
existing offices across Europe -- at the end of the month. "Cost is
one of the core issues that contributes to the decision," said
spokesman Stewart Todd.
Lloyds wants its EU subsidiary to be operational "the minute the
U.K. pulls out of the EU," Mr. Todd said. Officials for several
European cities have approached the iconic insurance company, he
added.
Aviva PLC, the insurer, will have to turn its Irish unit,
currently a branch of the U.K. business, into a subsidiary. "The
process is just commencing," a spokesman said. The firm already has
local subsidiaries in other European markets, including Spain,
Italy and France.
Lush Cosmetics Ltd., a manufacturer of bath and beauty products,
currently exports from its U.K. base to the continent. It opened a
new factory in Düsseldorf, Germany, last year, and will use that
together with its plant in Croatia to supply EU stores, said
spokeswoman Stephanie Boyd.
Around 80 of the company's U.K. employees have relocated to
Germany, the company said. "The negotiation of new trade agreements
could take years, but the risk is that we will be paying more
import duties across the business," the company said.
Bats Europe, a pan-European stock exchange based in London,
doesn't have an EU office, but is looking at a number of locations,
said chief executive Mark Hemsley. The company anticipates it will
take at least 18 months to establish a new EU entity, he said.
"A prudent approach is to have vehicles that are capable of
being compliant with U.K. and EU regulations, however similar or
dissimilar they may be as we exit the negotiations," Mr. Hemsley
said.
Other business options for smoother sailing post-Brexit include
being acquired by -- or merging with -- a European company, or the
creation of a "societas europaea," a public company registered in
accordance with EU corporate law. Still, these steps can take
several months or longer.
For example, BaFin, the German banking regulator, can take up to
six months to review an application for a banking license, said
Bernd Geier, a partner at Dentons Group in Frankfurt.
LG Electronics Inc. decided to move its European headquarters to
Eschborn in Germany, as part of a centralization effort, before the
referendum vote. In hindsight, the vote for Brexit vindicated the
South Korean electronics firm's decision, company spokesman Klaus
Petri said.
Advena didn't wait for the vote before its managing director,
John Adcock, started looking at options. The Warwick, U.K.-based
firm helps medical device manufacturers sell in EU markets, by
acting as their authorized representative. After some
consideration, Mr. Adcock decided to set up base in Malta, renting
an office and opening a bank account in the island country. He
plans to move the majority of his client contracts to Malta over
the next two years.
"We would be losing customers if we didn't have a separate EU
unit," he said.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
March 21, 2017 17:39 ET (21:39 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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