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May 18, 2024

Nestle India Shareholders Reject Proposal to Increase Royalty Payments to Swiss Parent

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Shareholders of FMCG giant Nestle India have decisively voted against a proposal to increase royalty payments to its Swiss parent company, Nestle. The company made this announcement late on Friday, following a significant shareholder vote.

The rejected motion aimed to elevate the royalty payment from the current level of 4.5% to 5.25% of net sales, excluding taxes. This increase was to be implemented incrementally at a rate of 0.15% per annum. However, the proposal did not gain the necessary support, with approximately 70.8% of public shareholders voting against it, as revealed in a regulatory filing.

According to Indian regulations, any potential increase in royalty payments to a parent company is categorized as a related party transaction. This classification prohibits controlling shareholders from participating in the vote, thereby giving public shareholders the decisive power in this decision.

The company’s communication did not clarify whether it plans to revisit or revise the proposal in the future. This outcome highlights the significant influence public shareholders wield in critical financial decisions, particularly those that impact the company’s expenditure and profit margins.

The vote underscores a broader tension between the interests of public shareholders and the strategic financial decisions of multinational corporations with local subsidiaries. As Nestle India navigates this complex landscape, the company’s next steps will be closely watched by both investors and industry analysts.

This decision by the shareholders reflects a cautious approach towards increasing financial commitments to the parent company, amidst an economic environment where profitability and shareholder returns are under constant scrutiny.

Jhumpa Lahiri

Jhumpa Lahiri

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