Packets of Maggi 2-Minute Noodles and Xtra-delicious Magical Masala, both manufactured by Nestle India Ltd., are displayed for sale at a general store in Mumbai, India. (Photographer: Vivek Prakash/Bloomberg)  

Nestle India To Seek Shareholder Nod Every Five Years On Royalty To Parent

Nestle India Ltd. will seek shareholders’ approval on royalty to be paid to its Swiss parent every five years, dropping its plan to make the payout in perpetuity after proxy advisory firms and investors raised concerns.

The company modified the resolution, to be considered in its April 25 annual general meeting, on the royalty paid in the form of general licence fees to Nestle SA, the maker of Maggi noodles said in an exchange filing.

“It’s a big win for shareholders. We had told the company that perpetuity does not make sense. The company got a similar feedback from investors,” Amit Tandon, founder and managing director at shareholder advisory firm Institutional Investor Advisory Services, said. “We’re happy that the company is listening to what the investors have said.”

Nestle India reviewed its general licence agreement with the parent in 2013 and, after negotiations, accepted to increase royalty from 3.5 percent to 4.5 percent of domestic sales. Starting Jan. 1, 2014, the increase was to be staggered over the next five years in hikes of 20 basis points each.

Tandon expects a lot of other companies to follow suit. “Periodically going back to shareholders to seek approval on such aspects is going to become the norm,” he said.

Under the general licence agreement, Nestle India has access to its parent’s global portfolio of brands and patents, its proprietary technologies and know-how developed by the global networks of research and development centres and expertise.