Why Nestle India's shareholders rejected higher royalty payment to parent
Mint, two of the largest money managers in Europe opposed the decision of the board of Nestle India. “The performance of the company does not sufficiently demonstrate the benefits of the royalty payments over the years, which have grown at a rate higher than the company's revenues and net profit," said Legal & General Investment Management (LGIM), UK’s largest fund manager, managing $1.5 trillion of assets. Nordea Asset Management, the investment arm of the Nordic region’s largest bank, having $400 billion in assets under management, also opposed the resolution.
“Based on the level of expenses incurred by the parent entity on marketing, research and development costs, there is lack of a compelling justification for the increase in royalty from the current arrangement," it said. “We do not support the proposal as it does not protect or enhance long-term shareholder value creation," said Nordea. “This proposal is not in shareholders’ best interests," reasoned British Columbia Investment Management Corp.
(BCI), a large Canadian pension fund that manages $200 billion in assets, when it voted against the proposal. The California Public Employees’ Retirement System (CalPERS), which has about $500 billion in assets under management (AUM), and the City of New York Group Trust, with about $200 billion of AUM, were the two other large investors that rejected the resolution. An email sent to Nestle India seeking comment went unanswered.
The proposed royalty fee was to be effective 1 July. Under the new plan, the Indian arm of the Swiss food company had agreed to pay an annual 0.15% increase in royalty payments, for the next five years. This would have implied Nestle India paying 5.25% of revenue in royalty payments to the parent
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