By Andrew Frye and Duane D. Stanford - Apr 26, 2012 3:45 AM GMT+0700
Coca-Cola Co. (KO) Chairman Muhtar Kent, who pushed for the beverage maker’s 11th stock split with an appeal for greater market liquidity, may be philosophically at odds with his biggest investor, Warren Buffett.
Buffett, who controls a Coca-Cola stake of almost $15 billion, has resisted splitting Class A shares of his Berkshire Hathaway Inc. (BRK/A), which closed yesterday at $119,700. Splits, he said in a 1984 letter, may encourage short-term investment strategies that enrich brokers at the expense of the business.
Cans of Coca-Cola Co. soda move along a conveyor belt at the company's Swire bottling plant in Salt Lake City, Utah. Photographer: George Frey/Bloomberg
Muhtar Kent, chief executive officer of Coca-Cola Co., at the World Economic Forum (WEF) in Davos. Photographer: Simon Dawson/Bloomberg
“I don’t know what he would say about this one,” said Howard Buffett, the investor’s son and a director at Atlanta- based Coca-Cola. Howard Buffett, who spoke today on the sidelines of the soft-drink maker’s annual meeting, said he voted for the 2-for-1 split and had not discussed the transaction with his father. “Every situation is different.”
The transaction will halve the price of Coca-Cola, which ended yesterday at $74.12, making it more affordable for retail investors, said Jack Russo, an analyst at Edward Jones & Co. It “reflects our desire to share value with an ever-growing number of people and organizations around the world,” Kent, also the chief executive officer, said today in a statement.
“It’s somewhat ironic that a stock that’s been part of the Buffett portfolio all these years is playing that stock- splitting game,” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc. “Be careful what you wish for. Is it more and better shareholders that are going to have a long term view? I doubt it.”
Coca-Cola rose 1.1 percent to $74.93 at 4 p.m. in New York. Berkshire, where Buffett is chairman and CEO, accumulated its stake in the world’s largest soft-drink maker from 1988 to 1994 at a cost of about $1.3 billion.
‘Pickpocket of Enterprise’
Coca-Cola split its stock in 2-for-1 transactions three times while Buffett, a Coca-Cola director from 1989 to 2006, was on the board. Howard Buffett, also a director at Berkshire, joined the Coca-Cola board in 2010.
“One of the ironies of the stock market is the emphasis on activity,” Warren Buffett said in the 1984 letter. “But investors should understand that what is good for the croupier is not good for the customer. A hyperactive stock market is the pickpocket of enterprise.”
Shareholders at today’s annual meeting stood and applauded when Kent told them of the newly proposed split. Warren Buffett didn’t mention the action in a video he taped to open the meeting.
‘Never Sold a Share’
“I’ve had a relationship with Coke for over 70 years,” Buffett, who drinks Cherry Coke, said in the video. “Today we own 200 million shares. We’ve never sold a share of Coca-Cola.”
Kent Landers, a spokesman for Coca-Cola, declined to comment about the statements in Buffett’s letter. Warren Buffett didn’t return a message seeking comment.
Buffett, who holds more than $40 billion in Berkshire stock, has said gains represent a barrier to entry for short- term investors and encourage shareholders to think like owners. Berkshire shares cost a minimum of $33,200 each 16 years ago. The cost of entry fell as Buffett added a second class of stock and, two years ago, split the B shares to facilitate the $26.5 billion cash-and-stock takeover of railroad Burlington Northern Santa Fe.
‘One Opinion’
Berkshire Class B shares rose 15 cents to $79.94. Buffett split the B shares 50 for 1 in 2010, and said it enabled Burlington Northern investors to convert more of their holdings into Berkshire shares, reducing cash proceeds and tax costs. Howard Buffett said his father has “one opinion about how Berkshire should handle a stock split and another about how Coke would handle it.” The stock split requires shareholder approval.
Coca-Cola’s quarterly dividend has advanced more than 10- fold since Berkshire began buying shares, and Buffett said in 2011 that he expected the payouts to double in the next 10 years. Berkshire’s share of the quarterly payout rose to $102 million this year.
“Time is the friend of the wonderful business,” Buffett said of Coca-Cola in his letter to shareholders last year.
To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net.
To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Kevin Orland at korland@bloomberg.net.
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