Wintergreen Advisers today issued a report on the Coca-Cola Company
(NYSE:KO) and called for forceful action to revitalize the company.
David J. Winters, CEO of Wintergreen Advisers, said: “Coca-Cola has
serious problems but we believe they can be fixed. With the right
management and a commitment to serving shareholders, we think Coca-Cola
can thrive again.”
The report includes the following conclusions by Wintergreen:
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Pay for Coke’s top management has been excessive in light of the
company’s performance. Annual equity grants to top management have
risen steadily over the past four years while Coke’s profit growth has
stalled.
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Rather than putting a brake on pay, Coca-Cola’s equity stewardship
guidelines could continue to reward Coke’s top managers unjustly, and
the guidelines’ emphasis on cash bonuses could cost shareholders as
much as $10.20 of per-share value.
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Coke has been routinely outspending its cash flow in recent years and
funding the gap with debt. Additional spending on executive bonuses
and severance charges threatens to make this problem even worse. We
believe excessive pay practices combined with slowing profit growth
could threaten Coke’s 50-year record of dividend increases. Even
today, Coke has a dividend-coverage ratio of just 1.4x, compared to an
average of 5.0x for its peers in the S&P 500.
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The strategic investments made by CEO Muhtar Kent have destroyed
shareholder value. His blunders on failed acquisitions alone have cost
shareholders $16.3 billion. He is incapable of leading Coke’s
turnaround and should be replaced.
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The recent election of two new directors to the Coca-Cola Board is a
welcome sign of progress, yet we believe more needs to be done.
Indeed, Coca-Cola’s Board has Directors who, in our view, have served
for too long. Three members of the board have served for a combined
102 years. We believe such long tenures can make the board an insular
club rather than a vigilant protector of shareholders’ interests.
Wintergreen estimates that the discount placed on Coke’s shares because
of these issues is between $30 and $38 per share. Removing these
discounts would put Coke’s share price at $74 to $82 per share, in line
with the $90 per share Nomura Securities analyst Ian Shackleton believes
Coke shares could be worth in an LBO scenario.i
Wintergreen believes resolving Coke’s issues is relatively easy and
straightforward – get rid of bad compensation plans, bring in new and
more capable management, get expenses and overhead under control, and
replace the board with a shareholder-focused board.
To download a copy of the report, “Coca-Cola’s Fizzy Math: How Bad
Performance, Excessive Pay and Weak Governance are Harming
Shareholders,” please click on the following link: http://www.wintergreenadvisers.com.
About Wintergreen Advisers
Established in 2005, Wintergreen is an independent global money manager
that employs a research-driven value style in managing global
securities. As of September 30, 2014, Wintergreen Advisers had
approximately $2.0 billion under management on behalf of individuals and
institutions through its mutual fund and other clients, and is based in
Mountain Lakes, New Jersey. Wintergreen’s clients own over 2.5 million
shares of The Coca-Cola Company, and have owned Coca-Cola shares for
over five years.
For further information on Wintergreen Advisers, please call
973-263-4500 or visit www.wintergreenadvisers.com.
Additional information regarding what we view as the issues at The
Coca-Cola Company may be found at www.FixBigSoda.com.
For information, forms and documents regarding our U.S. mutual fund,
please visit www.wintergreenfund.com.
i Source: Nomura Securities, October 29, 2014 report
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