Coca-Cola, the $180bn symbol of American capitalism and consumer culture, could soon find itself in the middle of a fight between shareholders who have different visions of what their company’s future should be.
In an ideal world, some, like shareholder David Winters, would prefer if Coca-Cola remained owned by the investing public and spread its dividends and wealth around.
Mr Winters claims, however, that others – who may include Coca-Cola’s biggest shareholder, Warren Buffett, with about 9 per cent of the stock – wonder if the company could be ripe for the riches offered by private ownership.
Mr Winters, whose fund holds a $105m (£62m) stake in Coca-Cola, objected strongly to the company’s executive pay plan earlier this year and urged Mr Buffett to support him – which Buffett eventually did … kind of.
Now Mr Winters claims that Mr Buffett’s Berkshire Hathaway could be planning to take Coca-Cola private eventually, perhaps with the help of the investment firm 3G Capital, and is concerned that it could be what he calls a “sweetheart deal” that could short-change other shareholders, if an auction is not held to attract the highest price.
The financial news TV channel CNBC reported that Mr Buffett denied a buyout of Coca-Cola was being planned.
Such a take-private buyout would in theory cost more than $200bn – several times bigger than any buyout in history – so most analysts have dismissed Mr Winters’ claims.
Spokesmen for Berkshire Hathaway, Coca-Cola and 3G all declined to comment.
So why is Mr Winters so suspicious?
Well, Mr Buffett teamed up with Jorge Lemann’s 3G Capital to take Heinz private in a $23bn deal last year. In Berkshire Hathaway’s annual report, Buffet said: “With the Heinz purchase, moreover, we created a partnership template that may be used by Berkshire in future acquisitions of size.”
And, Mr Winters notes, at Berkshire Hathaway’s shareholders meeting Mr Buffett said: “We haven’t bought Coca-Cola … yet.” Mr Buffett’s son Howard sits on the Coca-Cola board.
Mr Lemann is Brazil’s richest man and a legendary deal maker who took Burger King private in 2010.
Mr Winters has written to independent directors at Coca-Cola to express his concerns about a possible “sweetheart deal” without a “go-shop” period, like Berkshire’s purchase of Heinz. “Since Berkshire is Coca-Cola’s largest shareholder, owning greater than 9 per cent of the outstanding shares, and Warren Buffett’s son Howard serves as a director of both Coca-Cola and Berkshire Hathaway, we believe our concerns are valid.”
Of particular concern to Mr Winters is his claim that a buyout of Coca-Cola could trigger change-of-control provisions for the company’s top executives. Mr Winters claimed: “If such a deal were completed today, Coca-Cola chairman and chief executive Muhtar Kent alone would stand to reap a nine-figure payday.”
Tensions are running high. Most analysts are sceptical that a buyout worth more than $200bn could ever be done.
One Berkshire Hathaway shareholder, the hedge fund manager Whitney Tilson, said: “They are in no position to make a bid for it any time soon – at least five years, I’d guess… Coke is too big, the stock is too expensive, Berkshire and 3G’s war chest is depleted by the Heinz acquisition, and 3G will have its hands full with Heinz for at least a year or two.
“As a long-time Berkshire shareholder, I hope this deal happens someday, but I don’t think it’s likely.”
Asia’s rising debt burden will change risk equation
For anyone who thinks $200bn is a lot of money, how does $60 trillion sound?
That is the amount of debt and refinancing that Standard & Poor’s predicts companies around the world will seek out in the next five years. To be clear, that’s 60 thousand billion dollars of loans, bonds and other debt.
With investors looking for yield, companies around the world are tapping the debt capital markets like never before as well as seeking more traditional bank finance.
With such demand from investors for company debt, firms can lock in funding at very favourable interest rates.
All good news so far – but such a binge on debt doesn’t come without its risks, warns S&P, which is concerned about Asia-Pacific in particular.
It said corporate debt in Asia-Pacific – led by China – would exceed that of North America and Europe combined by 2016.
S&P said: “Without improved risk assessment among investors and a heightened awareness by regulators of contagion risk, some future financial stress could stem from Asia.”
China now has more outstanding corporate debt than any other country.
“We expect Asia-Pacific corporate issuers, particularly from China, to make up half of the $60trn in projected new and refinancing demand over the five years 2014-2018,” S&P said. “This implies heightened global corporate credit risk.”