Conversation on Coca-Cola takes a private twist


Activist investor David Winters stokes up some conversation on Coca-Cola (KO +0.3%) this morning by throwing out the somewhat wild notion that Berkshire Hathaway might take a look at taking the beverage company private.

Buffett has stayed pretty neutral on Coca-Cola this year, not siding with activist investors, but also falling short of fully endorsing current management.

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Comments (11)
  • Minutemen
    , contributor
    Comments (2296) | Send Message
     
    I don't believe it. Not for a second.
    17 Jun 2014, 09:45 AM Reply Like
  • chopchop0
    , contributor
    Comments (5271) | Send Message
     
    Agreed. KO is no Heinz.
    17 Jun 2014, 09:51 AM Reply Like
  • Larry Smith
    , contributor
    Comments (3188) | Send Message
     
    KO has a market cap of about $178 billion, he would have to pay a premium, probably a big one, to get KO, making the cost well over $180 billion, less the shares he owns.. That is too much for even Buffett. I think BNSF was a huge bite for him and that was around $40 billion.
    17 Jun 2014, 09:53 AM Reply Like
  • long shareholder
    , contributor
    Comment (1) | Send Message
     
    Warren Buffett needs to get KO management in line on their comp packages - and that's the first order of business.
    17 Jun 2014, 10:04 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (1222) | Send Message
     
    Well that didn't last long:

     

    "Absolutely no chance of that," Buffett told CNBC on Tuesday.

     

    http://cnb.cx/1jwakqP
    17 Jun 2014, 10:21 AM Reply Like
  • Tradevestor
    , contributor
    Comments (5014) | Send Message
     
    You can believe in those rumors or just buy it for these reasons :)

     

    http://seekingalpha.co...
    17 Jun 2014, 10:42 AM Reply Like
  • vegas05
    , contributor
    Comments (71) | Send Message
     
    KO: buy out or not. Still a great intl play, at a reasonable px and yield
    17 Jun 2014, 11:55 AM Reply Like
  • butchokoy
    , contributor
    Comments (58) | Send Message
     
    David should have asked WB himself:-) WB came out on CNBC that "no way to take KO private". Too expensive even for the Oracle of Omaha himself. Plus, with interest rates about to rise, what is the point of taking it private. KO to be private will have to load a lot of debt. This will be expensive in a high interest rate environment that the Fed will be going.
    17 Jun 2014, 01:08 PM Reply Like
  • just a user
    , contributor
    Comments (72) | Send Message
     
    Interest rates are low now. I can't imagine WB using flexible rate loans that would increase in the future. Also, I can't imagine Coke's current debt would be variable rate either. So, I think interest rates are a non issue.

     

    I think WB could handle the deal, but WB probably questions the possible fall out from health concerns, changes in eating habits, etc. affecting long-term growth prospects. If he does nothing now, he just has a huge cash cow throwing him dividends every quarter. If takes Coke private, then he has those headaches to take on and pass on to his business heirs.

     

    Long KO with a whopping 40 share stake. :)
    17 Jun 2014, 05:13 PM Reply Like
  • George P. Burdell
    , contributor
    Comments (298) | Send Message
     
    Friends, please don't take these ramblings seriously... Winter's speculation is utter nonsense... At the great risk of "never say never".... that will NEVER happen.
    17 Jun 2014, 02:55 PM Reply Like
  • butchokoy
    , contributor
    Comments (58) | Send Message
     
    Interest rates will play a role eventually because as a private company you are down to debt as an option to finance the company. Interest rates will not remain low forever. When rates are low, companies refinance debt or load up some debt to do mergers and acquisitions. When rates are high, private companies want to go public because it's the cheaper way to raise capital.

     

    People talked about market capitalization as valuation for WB to buy Ko. It's actually EV (Enterprise Value). Enterprise Value assumes the current debt load of Coca Cola. That means if WB takes KO private, he will have to take KO's current debt on its balance sheet plus pay around 25% premium for the company. This comes out at $225 billion plus the debt on its balance sheet. That's a lot to swallow. We all know WB doesn't like to operate on a lot of leverage (debt).

     

    The other thing to consider is KO is a marketing and distribution company. KO needs to spend a lot of money to promote, advertise, sponsor and acquire future potential competitors. That will put a lot of pressure on a privatized KO. As a private company they will be at the mercy of the debt markets and banks. KO needs to be a publicly traded company because of its business model. They need the advantages of debt and equity markets.

     

    KO is such an American icon that anyone who will look at the risk side of this deal (such as mentioned above) knows that you don't want to be the one who will mess this up and ruin a great American icon.

     

    This is the kind of deal (take KO private) the go go 80s LBOs will do. Borrow a lot of money, load the company with debt and pay themselves huge bonuses and walk away or take it public again so they (LBO) can cash out. Either way private or public the company just ends up with more debt. :-)

     

    Long KO
    18 Jun 2014, 12:59 PM Reply Like
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