Hike in Royalty Payments by ACC

Abstract

During the period of 2010–2013, many MNCs in India were in a hurry to increase royalties to their parent companies as a proposed regulation in India was going to make it difficult after October 2014. In December 2012, the Board of ACC decided to increase the royalty payments from 0.6% to 1% of net sales to Holcim, the parent company of ACC. The market reacted negatively and the stock price of ACC fell by 2% on the date of announcement and around 10% in the two-month period following the announcement. There was widespread resentment among investors. Many questioned the corporate governance practices followed by MNCs in India. By 15 February 2013, the shareholders of ACC had to decide whether to vote in favor of the proposal. If Holcim, which controlled more than 50% stake in ACC, decided to participate in the voting, then the proposal would automatically be approved. The case explores the different options available to the shareholders of ACC and presents material to enable the shareholders to evaluate the merits of each of these alternatives. The case gives the readers an opportunity to value the stock of ACC and decide whether the market overreacted. The case also gives an opportunity to discuss the merits of the decision taken by ACC and to critically assess the corporate governance practices followed by ACC.