Companies Scout for EU Locations as Brexit Nears

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 [e-mail]

(END) Dow Jones Newswires

March 21, 2017 17:39 ET (21:39 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.