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Wintergreen Advisers – Your Home for Global Value®

Established in 2005, Wintergreen is an independent global money manager based in Mountain Lakes, New Jersey. Wintergreen employs a research-driven value style in managing global securities. The firm was founded by David J. Winters, who has 30 years of experience in investment advisory services, including management of registered investment companies. David Winters is the firm’s Chief Executive Officer. Wintergreen Adviser’s co-founder is Liz Cohernour, who has over 30 years’ experience in investment advisory business and is the firm’s Chief Operating Officer. All client assets are managed on a discretionary basis. The Adviser does not manage separate accounts.

Wintergreen Advisers Announces www.FixBigSoda.com and Outlines Steps to Revitalize Coca-Cola

July 23, 2014 03:46 PM Eastern Daylight Time

NEW YORK — July 23, 2014 (Business Wire) — Citing persistent weakness in revenue and net income at The Coca-Cola Company (NYSE: KO), Wintergreen Advisers today presented an eleven-point plan to revitalize the company.

The Wintergreen plan was shared in early July with Coca-Cola’s largest shareholders and is available today to the public on a new website, www.FixBigSoda.com, devoted to sharing information on improving Coke’s governance and business performance.

Wintergreen recommends that Coca-Cola cut costs, improve margins and step up the pace of bottler refranchising to significantly improve operating results. Wintergreen’s plan also calls for Coca-Cola to strengthen its corporate governance, improve disclosure, separate the roles of chairman and CEO and create a strong and independent Board of Directors.

David Winters, CEO of Wintergreen Advisers, said: “Coca-Cola’s lackluster second quarter earnings report underscores the need for urgent action. If the current board of directors and management team are unwilling or unable to get Coca-Cola back on the path of profitable and organic growth that accrues to all shareholders, they should be replaced. Coca-Cola and its shareholders deserve nothing less.”


July 8, 2014

Dear fellow Coca-Cola shareholders,

Over the past few years, Coca-Cola has simply not lived up to its potential. Revenue has been flat and net income before extraordinary items was lower in 2013 than in 2011, despite massive spending on marketing and several cost cutting initiatives.¹ At the same time, Coca-Cola’s debt has increased by $8.5 billion.² Furthermore, the pace at which Coca-Cola has fixed-up and refranchised its bottlers has been frustratingly slow, and disclosure on the performance of the bottling assets has been less than clear. All of these factors lead us to believe that Coca-Cola could be better managed.

We believe Coca-Cola’s shareholders deserve better, so we asked ourselves – “What would Coca-Cola look like if it were a well-run company with a focus on shareholder returns?” Here’s our answer:

Operations and integrity:

  • Best in class profit margins. Coca-Cola’s profit margin has been stuck at 26% for the past three years.³ By contrast AB InBev and SABMiller, both beverage companies with global footprints and sizes comparable to Coca-Cola’s, have profit margins of 40% and 34% respectively.⁴ In our opinion, there is no reason why Coca-Cola shouldn’t have profit margins comparable to these companies. If Coca-Cola achieved a profit margin of 37% (the average of AB InBev and SABMiller), its profits would be 41% higher. Assuming Coca-Cola continued to trade at its current valuation, the shares would be worth substantially more than their recent price of $42 per share.
  • A laser-like focus on costs. In just ten years, Coca-Cola's workforce has grown from 49,000 employees to 131,000 employees, while profit per employee has declined by 32% over that same period.⁵ We believe that Coca-Cola could be more efficient and that certain significant cost-cutting measures could be taken to boost profits per employee without harming the company.
  • An increased pace of bottler refranchising. It has been nearly four years since Coca-Cola purchased Coca-Cola Enterprises’ North American operations and since that time, little progress has been made in refranchising those bottling assets. Capital should be freed up from these operations and redeployed into the more profitable and less capital-intensive concentrate business, or returned to shareholders.
  • Improved disclosure. Investors should be able to see exactly how the bottling business is performing as a standalone business unit. Coca-Cola’s current disclosure is insufficient for this purpose.
  • Prioritizing pricing and profit over volume growth. Coca-Cola management has seemingly emphasized growing volumes in mature markets such as the United States rather than focusing on prices and profits. At the end of the day, it is profits that matter to shareholders, not volume.
  • No more attempts to buy growth. Paying large valuations for stakes in non-core businesses such as Keurig Green Mountain Inc. does not address the fundamental growth problems Coca-Cola has encountered in its primary business of selling cold beverages. Management’s focus should be improving its time-tested and highly profitable business lines rather than trying to buy growth.
  • No more cheapening Coca-Cola’s brands. Mixing apple and grape juice with 0.3% pomegranate juice and labeling it as pomegranate juice reflects poorly on the entire company and management. We believe that the United States Supreme Court's recent unanimous decision related to a lawsuit against Coca-Cola for its allegedly misleading labeling of pomegranate juice is indicative of larger problems with management’s focus, integrity and judgment.

Corporate Governance

  • Separate the roles of Chairman and CEO. Currently, Mr. Muhtar Kent serves as both the Chairman and CEO of Coca-Cola. Having an independent Chairman is a widely accepted best-practice for large, blue chip companies because it reduces certain conflicts of interests and helps to prevent management overreach. Coca-Cola should be a leader in corporate governance practices, and we believe the first step is having an independent Chairman.
  • Withdraw and replace the 2014 Equity Compensation Plan. We believe the Plan is overly-dilutive and harmful to shareholders and to Coca-Cola. It should be withdrawn and replaced with a more modest plan which includes clear and meaningful performance hurdles which must be cleared before any bonuses are paid and include an emphasis on cash awards. All details of any compensation plan should be contained within the proxy statement itself, not in supplemental filings, and should be presented in a clear and concise manner. Coca-Cola’s shareowners should be able to understand exactly what they are being asked to vote for without referencing several documents spread over several dozen of pages. For a complete picture regarding the 2014 Equity Plan, investors need to reference the proxy statement, a supplemental filing, and Coca-Cola’s 10-k.
  • Develop and implement a plan to reduce the dilutive effects of the existing 388 million equity awards.⁶ Whether through repurchasing options from employees or another mechanism, the 8.8% potential dilution from these awards needs to be addressed. The dilution overhang should be significantly reduced so that the future upside of Coca-Cola’s shares accrues to all shareholders.
  • A strong and independent Board of Directors. We question how a truly independent board could develop and unanimously approve a plan that ultimately garnered approval from less than half of Coca-Cola's total outstanding shares. An independent board's role is to stand up to management overreach and to represent the interests of the shareholders, who are the true owners of the company. At Coca-Cola, one-third of the board members have been there for more than 15 years, and many have overlapping business interests with each other and the company.⁷ Furthermore, many of the directors have little, if any, experience in the global beverage business. We believe it is time for some fresh, informed and independent perspectives in the boardroom.

Coca-Cola is a company with incredible potential around the world and some of the most valuable consumer brands ever created. Its shareholders deserve leadership that respects and honors the iconic nature of the company and is willing to do what it takes to restore Coca-Cola to the great company that we know it to be. We have outlined a few modest steps that we believe are essential to returning value to Coca-Cola. If the current board of directors and management team are unwilling or unable to get Coca-Cola back on the path of profitable and organic growth that accrues to all shareholders, they should be replaced. Coca-Cola and its shareholders deserve nothing less.

Sincerely,

David J. Winters, CEO
Wintergreen Advisers, LLC.
973-263-4500


Footnotes:

  1. Coca-Cola 2013 10-K, page 74; Coca-Cola 2011 10-K, page 78; this sentence has been corrected and updated as of July 10, 2014.
  2. Coca-Cola 2011 10-K, page 75; Coca-Cola 2013 10-K, page 76.
  3. As measured by EBITDA margin – earnings before interest, taxes, depreciation and amortization divided by net revenue.
  4. Bloomberg.
  5. Coca-Cola 2004 Annual Report page 12; 2013 Annual Report page 11; Bloomberg.
  6. Coca-Cola 2014 proxy statement, page 85.
  7. Coca-Cola 2014 proxy statement, pages 39 to 41.

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com
Follow Wintergreen Advisers on Twitter: @WintergreenAdv

Bryant Park Financial Communications
Richard Mahony (rmahony@bryantparkfc.com)
917-257-6811

Claire Currie (ccurrie@bryantparkfc.com)
212-719-7535

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Current Wintergreen Advisers News:

David Winters Q&A with Barron’s

July 7, 2014

David Winters discusses issues at Coca-Cola, why he isn’t selling Coke’s stock, and why he’s bullish on the Asian consumer, in the Barron’s article, “How a Hands-On Investor Went Flat on Coke” by Sarah Max.

View the article

 

David Winters appeared on Bloomberg TV

June 18, 2014

David Winters was interviewed by Tom Keene and Scarlet Fu on Bloomberg Surveillance. They discussed value investing, speculation about Berkshire Hathaway and 3G taking Coca-Cola private, executive compensation, dividends and buybacks.

 

 

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David Winters discusses issues at Coca-Cola
with Yahoo Finance

June 18, 2014

David Winters was interviewed by The Daily Ticker’s Aaron Task about the potential for Coca-Cola to be taken private and possible conflicts of interest.

 

 

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David Winters discusses Coca-Cola buyout
speculation on Fox Business

June 17, 2014

David Winters appeared on Fox Business with Maria Bartiromo to discuss the possibility of Berkshire Hathaway and 3G taking Coca-Cola private. They also discuss conflicts of interest and corporate governance issues at Coca-Cola.

 

 

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Wintergreen Urges Coca-Cola to Address Conflicts
Amid Buyout Speculation

June 17, 2014 10:00 AM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Citing its concern about possible conflicts of interest at The Coca-Cola Company (NYSE: KO) amid media speculation that 3G Capital and Berkshire Hathaway may be planning a transaction to take Coca-Cola private, Wintergreen Advisers today released the following letter. It is addressed to the independent directors who chair Coca-Cola’s Audit, Compensation, and Governance Committees and urges them to address these conflicts and take steps to exercise their fiduciary duty with regard for all shareholders.


Committee Chairs of the Board of Directors
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, GA 30313

June 16, 2014

Dear Ms. Lagomasino and Messrs. Greenberg and Nunn:

Events over the past few months, leading up to and after the annual meeting of Coca-Cola shareholders, have given rise to grave concerns at Wintergreen Advisers regarding potential conflicts of interests at Coca-Cola. I am writing to you, in your roles as chairs of the Compensation, Audit, and Governance Committees, respectively, to urge you and your fellow Board members to address the current and potential conflicts that we identify below.

Wintergreen’s specific and most recent concern stems from speculation in the U.S. and Brazilian media that Berkshire Hathaway, your largest shareholder, and 3G Capital, a private equity firm, may be planning a transaction to take Coca-Cola private.¹ Media reports express the view that Berkshire's and 3G's recent joint acquisition of Heinz may serve as the blueprint for such a transaction. Additionally, Warren Buffett has stated that the Heinz deal “created a partnership template that may be used by Berkshire in future acquisitions of size”² and stated at Berkshire’s 2014 shareholders meeting that "we haven’t bought Coca-Cola, yet.”

As you may recall, the Heinz deal took place quickly, in part because there was no “go-shop” period in which Heinz could solicit competing offers and potentially increase the purchase price. In addition, Heinz agreed to a $750 million termination fee, which is about three times greater than if there had been a typical go-shop provision.³ All of this combined to make the deal “unusual” and the Heinz Board subsequently negotiated only with Berkshire and 3G.⁴ As adviser to longtime shareholders of Coca-Cola, we are concerned that a similar type of sweetheart, insider deal for Coca-Cola could, in our opinion, significantly undervalue Coca-Cola and irreparably harm Coca-Cola shareholders. Since Berkshire is Coca-Cola's largest shareholder, owning greater than 9% 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.

None of Coca-Cola, Berkshire or 3G has publicly commented on the accuracy of these media reports. However, the possibility of a Berkshire-3G bid puts both Warren Buffett's curious silence and subsequent abstention regarding the Coca-Cola 2014 Equity Plan that he thought was "quite excessive" and the Coca-Cola Board’s machinations to win shareholder approval of the excessive Plan, seemingly at any cost, in a worrisome context.

Under the Plan, a buyout could trigger a change-of-control provision, immediately vesting equity awards granted to Coca-Cola’s top management and its Board members. In addition, the Plan removed a 5% cap on awards to any individual, potentially allowing Coca-Cola to front-load awards. As a result of these provisions, stock and options worth hundreds of millions of dollars at today's share price that would otherwise be paid out over a period of several years could vest overnight. If such a deal were completed today, Coca-Cola Chairman and CEO Muhtar Kent alone would stand to reap a nine-figure pay day. Coca-Cola's and Berkshire's failure to meaningfully address concerns regarding the Plan and the way it was adopted raise significant questions about whether passing the Plan was a pay off for Mr. Kent's acquiescence in going along with a future acquisition of Coca-Cola.

Regardless of whether the Coca-Cola Board considers this accelerated vesting a feature or an oversight of the Plan, we are concerned that it incentivizes the Board and Mr. Kent to sell Coca-Cola, regardless of the price. In addition, in a "going-private" transaction, the buyers (here, potentially Berkshire and 3G) seek to pay the lowest possible price for the target company, whereas it is in the best interests of the shareholders to receive the highest premium possible. We remind the Coca-Cola Board members that in a potential buyout situation, they have a fiduciary duty to shareholders to obtain the highest price reasonably available, regardless of whether they have competing personal interests.

In our opinion, any proposed transaction should be reviewed and priced by an independent committee of the Coca-Cola Board with the assistance of respected outside counsel and advisers. At a minimum, we believe there should be a go-shop period in which Coca-Cola solicits multiple bids and creates a truly competitive process in order to obtain the highest reasonable price for shareholders. Given the extent of the potential conflicts of interest and the events over the past few months, we expect nothing less.

In addition, the Coca-Cola Board should consider heading off a potential bid by undertaking an immediate restructuring plan of its own under a new management team. We believe there is a great deal of additional value within Coca-Cola that a new management team could quickly unlock by running Coca-Cola more efficiently and on behalf of its true owners, the shareholders. We are concerned by current management’s recent track record of acquiring short-term growth at lofty valuations, such as the recent Keurig Green Mountain Inc. acquisition, rather than focusing on long-term growth and profitability at Coca-Cola’s core brands and products. Additional such deals will only dilute the enormous value of Coca-Cola’s existing brands and distract management from the task of restoring Coca-Cola to organic growth.

Since Coca-Cola filed its 2014 Proxy Statement and subsequently muscled through the controversial Equity Plan, there are now more questions than answers. It increasingly appears to us that there are substantial conflicts of interests, extensive governance issues and perhaps plans to take Coca-Cola private. This is extremely troubling and is exacerbated by Coca-Cola's failure to address these legitimate concerns. The shareholders deserve prompt and complete answers.

Regards,

David J. Winters, CEO
Wintergreen Advisers, LLC
973-263-4500

Cc: Board of Directors


Footnotes:

  1. Fortune, "Warren Buffett, activist investor?" by Jen Wieczner, May 3, 2014. Istoe Dinheiro, "A próxima cortada de Buffett," By Cláudio Gradilone & Carlos Eduardo Valim, May 9, 2014. (With English translation). Full articles available at http://fortune.com/2014/05/03/warren-buffett-activist-investor/ and http://www.istoedinheiro.com.br/noticias/negocios/20140509/proxima-cortada-buffett/153158.shtml
  2. 2013 Berkshire Hathaway Annual Report, page 3
  3. The New York Times, “Buffett’s Kind of Deal” by Steven Davidoff, Feb 15, 2013. Full article available at http://dealbook.nytimes.com/2013/02/15/warren-buffetts-kind-of-deal/?_php=true&_type=blogs&_r=0
  4. HJ Heinz proxy statement, March 27, 2013, pages 37-49

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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Warren Buffett discusses why he abstained from voting on Coca-Cola’s 2014 Equity Plan

April 23, 2014

Following Coca-Cola’s Annual Meeting on April 23, 2014, Warren Buffett was interviewed by CNBC’s Becky Quick about his decision to abstain from voting on Coca-Cola’s controversial equity compensation plan, even though he thought the plan was "excessive." He also discusses why he didn’t publicly voice his concerns about the plan like Wintergreen Advisers CEO David Winters did, and why he has voted in favor of compensation plans in the past even when he did not agree with them.

 

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David Winters talks about Coca-Cola and Warren Buffett on Fox Business

May 7, 2014

David Winters tells Fox Business’ Maria Bartiromo he believes that Warren Buffett and the Board of Directors at Coca-Cola have failed their fiduciary duties to shareholders by allowing Coca-Cola’s equity compensation plan to pass.

 

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Wintergreen Advisers Writes Directors of Coca-Cola, Berkshire Hathaway

May 7, 2014 10:30 AM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Wintergreen Advisers today released the following letter, which was sent to the directors of The Coca-Cola Company (NYSE: KO) and Berkshire Hathaway (NYSE: BRK.A, BRK.B). In the letter, Wintergreen states its belief that the Boards’ recent actions are utterly inconsistent with the well-defined fiduciary duties that they owe to their respective shareholders.


Board of Directors
Berkshire Hathaway Inc.
3555 Farnam St.
Omaha, NE 68131

Board of Directors
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, GA 30313

May 7, 2014

Dear Board Members,

Over the past six weeks, Wintergreen Advisers has raised a number of serious issues regarding the excessive nature of Coca-Cola's 2014 Equity Plan. As we have stated in numerous communications, we believe the plan materially dilutes shareholders and allows senior management to reap outsized rewards just for showing up. All of this is well-known. Perhaps less well-known, and potentially more troubling, however, are the corporate governance issues that emerged during the course of Coca-Cola's proxy solicitation period and shortly thereafter.

Recently, we learned that (i) not a single Coca-Cola Director voted against the plan that ultimately garnered support from less than half of Coca-Cola's total outstanding shares, (ii) Coca-Cola pushed through the plan over the objections of its largest shareholder, and (iii) Warren Buffett disapproved of the plan, but did not want to speak out for fear of embarrassing Coca-Cola. We find all of this very troubling and indicative of major corporate governance issues, both at Coca-Cola and at Berkshire Hathaway.

Corporate governance has been very much in the news this proxy season. SEC Commissioner Luis Aguilar put it very well in an April 2014 speech in which he stated that for investors, corporate governance "means that the owners of the company are those who have paid to own the company's stock, and that management are merely their employees[.] . . . But even the most capable management, left unchecked can make bad decisions [and that] is why shareholders elect a board of directors to represent their interests. . . . Good corporate governance helps shareholders and their representatives to hire the right managers, and helps make sure that the managers remember they ultimately answer to shareholders. Additionally, good corporate governance also helps to remind the company's directors that they work for the company's shareholders, not for themselves, and certainly not for management." (emphasis added) As Commissioner Aguilar noted in his speech, these concepts are not new, and the duties of loyalty and due care owed by corporate directors have been well-developed over time in Delaware and other state courts. In the context of a proxy solicitation, good corporate governance and a board's adherence to its fiduciary duties means that directors disclose all material information within their control when they seek shareholder action.

In light of the events surrounding Coca-Cola's annual meeting and the passage of the excessive 2014 Equity Plan, we believe that the directors of both Coca-Cola and Berkshire Hathaway would do well to study Commissioner Aguilar's words. Indeed, we believe their recent actions are utterly inconsistent with the well-defined fiduciary duties that they owe to their respective shareholders. The Coca-Cola Directors never should have approved such an excessive plan. Furthermore, upon learning of the dearth of shareholder support for the plan, the Directors should have withdrawn the plan or firmly committed to scaling back its implementation. In Berkshire Hathaway's case, we believe the Directors had a duty to represent the best interests of their shareholders, even if doing so would embarrass their cronies.

Overall, we love Coca-Cola as a company. Our clients have owned Coca-Cola shares for more than five years and we believe that good corporate governance could unlock a great deal of value for shareholders. However, as recent events have demonstrated, instituting good corporate governance is difficult, if not impossible, at a company that ignores its shareholders.

Regards,

David Winters, CEO
Wintergreen Advisers, LLC
973-263-4500

Cc: Muhtar Kent
Herbert A. Allen
Ronald W. Allen
Ana Botin
Howard G. Buffett
Richard M. Daley
Barry Diller
Helene D. Gayle
Evan D. Greenberg
Alexis M. Herman
Robert A. Kotick
Maria Elena Lagomasino
Donald F. McHenry
Sam Nunn
James D. Robinson III
Peter V. Ueberroth
Jacob Wallenberg

Warren E Buffett
Charles M. Munger
Howard G. Buffett
Stephen B. Burke
Susan L. Decker
William H. Gates III
David S. Gottesman
Charlotte Guyman
Donald R. Keough
Thomas S. Murphy
Ronald L. Olson
Walter Scott, Jr.
Meryl B. Witmer

 

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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David Winters Discussed the Coca-Cola Compensation Plan with Becky Quick on CNBC

May 2, 2014

Speaking from the site of the 2014 Berkshire Hathaway Annual Meeting in Omaha, NE, David Winters tells CNBC’s Becky Quick that he was "absolutely stunned" when he learned about Coca-Cola's equity compensation plan for executives. He also urged the beverage giant to withdraw the "extreme overreaching" plan, saying it raised questions about Coke's corporate governance.

 

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Wintergreen Calls on Coca-Cola to Commit to Changes in Equity Plan

May 02, 2014 08:00 AM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Wintergreen Advisers today issued the following statement:

After several weeks, Coca-Cola (NYSE: KO) appears to be taking seriously the issues we raised regarding its equity plan in our first letter to Coca-Cola's Board and Warren Buffett on March 21st.

But vague promises from unnamed sources are not enough. Coca-Cola must make a detailed, publicly disclosed commitment to withdraw or substantially modify the plan. We would expect the modifications to include the reduced use of equity awards as incentive compensation. Coca-Cola's shareholders deserve nothing less.

Shareholders also deserve an answer to an important question: What were the events that led up to the decision by the Board to accept a plan that Coca-Cola's largest shareholder and most famous investor agrees is excessive?

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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Wintergreen Questions Board Actions in Coca-Cola Equity Plan Vote

May 01, 2014 10:00 AM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Wintergreen Advisers today released the following letter, which was sent to the Coca-Cola (NYSE: KO) Board of Directors and Warren E. Buffett at approximately 2:00pm ET yesterday, April 30, 2014. The letter raises questions about the actions of Coca-Cola Chairman and CEO Muhtar Kent, Director Howard Buffett and Director Maria Elena Lagomasino, and statements made by the company in connection with the shareholder vote on the Coca-Cola 2014 equity plan.


Board of Directors
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, GA 30313

April 30, 2014

Dear Coca-Cola Board Members,

Warren Buffett has publicly stated that he spoke with Coca-Cola Chairman and CEO Muhtar Kent multiple times leading up to Coca-Cola's annual shareholder meeting and expressed his lack of support for the 2014 Equity Plan. Mr. Buffett has also said that he spoke with his son Howard Buffett, who serves as a director of Coca-Cola, regarding the 2014 Equity Plan. In an interview with CNBC hours after the shareholder meeting, Mr. Buffett stated that the plan “really struck me as quite excessive.” We would like to know whether Mr. Muhtar Kent or Mr. Howard Buffett made the Compensation Committee or the full Board of Directors aware of Mr. Warren Buffett’s views on the 2014 Equity Plan. Did Mr. Buffett speak with any other Coca-Cola directors regarding his views of the 2014 Equity Plan, and if so, when?

In particular, we would like to know whether, as head of the Compensation Committee, Ms. Lagomasino was informed of Mr. Buffett’s views? If so, we question how Coca-Cola could be comfortable with the statement “We are really pleased that we are seeing broad-based investor support for this plan." Further, we would like to know whether Coca-Cola reached out to institutional investors before the shareholder meeting to drum up support, even after it knew that its largest shareholder opposed the plan. If Coca-Cola did reach out to investors, did it state or imply that it had received generally positive feedback from other investors?

Regarding the 2014 Equity Plan itself, we do not believe there is a reasonable basis for Ms. Lagomasino's statement at the shareholder meeting that “the new plan is not any more dilutive than historical plans and programs.” This is demonstrably false. The simple math is clear – the 2014 plan calls for more awards than previous plans, distributed in fewer years than previous plans. This is undeniably more dilution. Warren Buffett made this clear in his April 23rd interview on CNBC, stating “the plan – compared to past plans was a significant change…I thought it was too much.”

As investment adviser with a fiduciary duty to our longtime shareholders, we are deeply concerned that Coca-Cola is becoming known not for great products but for excessive management compensation, the trampling of shareholders’ interests and a willful disregard for the valid concerns of its largest shareholder.

We look forward to the board’s response to these urgent questions.

Regards,

David J. Winters

Cc: Warren Buffett

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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Wintergreen Believes Coca-Cola Lacks Shareholder Mandate for Equity Plan

April 24, 2014 02:30 PM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Shareholders in the Coca-Cola Company (NYSE: KO) delivered a clear message at yesterday’s annual meeting that they do not support Coca-Cola's 2014 equity plan.

Coca-Cola’s certified ballot results, filed with the SEC late yesterday, show that fewer than half of Coca-Cola’s total outstanding shares (2.19 billion out of 4.40 billion) were voted in favor of the 2014 equity plan. By contrast, 66% of the total outstanding shares were voted in favor of Coca-Cola's previous plan.

David Winters, CEO of Wintergreen Advisers, said “Coca-Cola’s plan failed to attract support from a majority of shareholders, including its largest shareholder, Berkshire Hathaway (NYSE: BRK.B). Wintergreen believes that no company should implement an equity plan without the support of a majority of its shareholders, least of all a great company like Coca-Cola. It is clear to us that Coca-Cola failed to earn a shareholder mandate to fully implement the 2014 equity plan and we call on Coca-Cola's Board of Directors to withdraw or scale back the plan. According to SEC filings, Coca-Cola had more than 66 million shares available for issuance under existing equity plans as of February 20th, which we believe would allow it to continue to issue stock awards while developing a more shareholder friendly plan.”

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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Wintergreen Asks Shareholders to Consider Nine Points Before Voting on Coca-Cola's Equity Plan

April 22, 2014 03:00 PM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Ahead of the Coca-Cola Company (NYSE:KO) annual shareholders’ meeting tomorrow, April 23, David Winters, CEO of Wintergreen Advisers, wrote a letter intended for all Coca-Cola shareholders.

Winters wrote “We believe Coca-Cola’s 2014 annual proxy statement fails to present important information ‘in a clear and easy to read manner’ with regard to the description of the proposed equity plan. We hope all fiduciaries will consider this letter and the attachment; ‘Nine Points to Consider Before Voting on Coca-Cola’s 2014 Equity Plan,’ in light of the material Coca-Cola has provided and ask themselves whether Coca-Cola has been forthcoming about the implications of the proposed equity plan.“

Winters continued “If there is significant opposition to the proposed equity plan, we believe the Coca-Cola board should consider whether it has a sufficient mandate from shareholders to fully implement the plan. Should the board proceed with the plan, we will be watching closely to see whether it is executed in a manner that serves shareholders’ interests and will continue to communicate our concerns.”

Separately, earlier today the Florida State Board of Administration, owner of approximately 6.4 million Coca-Cola shares, announced it has voted against the Coca-Cola 2014 equity plan.

The full text of the letter is included below.


Wintergreen Advisers, LLC Letter to Coca-Cola Shareholders

April 22, 2014

Dear Fellow Coca-Cola Shareholders:

Since we made public our first letters to the Coca-Cola Board of Directors and Warren Buffett on March 21, we have been fortunate to receive expressions of support from many shareholders, both large and small, who share our concerns about Coca-Cola’s proposed equity plan. Several large institutional investors have publicly announced their opposition to the proposed equity plan, and we are hopeful that even more will come forward.

Wintergreen Advisers, LLC, like other institutional investors, fund managers and financial advisers, has a fiduciary duty to its clients to act in their interests when voting on proxy matters. We all rely on a public company's proxy materials to present important information “in a clear and easy to read manner” and expect a “plain English explanation of how boards arrive at pay decisions.”¹

Wintergreen believes Coca-Cola’s 2014 annual proxy statement fails to meet these standards with regard to the description of the proposed equity plan. We hope all fiduciaries will consider this letter and the attachment “Nine Points to Consider Before Voting on Coca-Cola’s Proposed 2014 Equity Plan” in light of the material Coca-Cola has provided and ask themselves whether Coca-Cola has been forthcoming about the implications of the proposed equity plan.

Like many other institutions, Wintergreen reports its proxy voting record each year and gives careful consideration to every vote we cast on behalf of our clients. We simply could not justify a vote in favor of Coca-Cola's proposed equity plan once we understood its potential impact on our clients’ investment.

We concluded that Coca-Cola was proposing a very bad plan. It is bad for Coca-Cola, the vast majority of Coca-Cola employees and above all, it is bad for shareholders.

Recently, Coca-Cola issued a statement that the proposed equity plan is "closely in line with past plans approved by the Board and the shareowners,”² but we believe it is abundantly clear that this is simply not true. The proposed equity plan is potentially highly dilutive and destructive to long-term shareholder value. We do not believe it is in shareholders’ best interests to have their investment diluted so that the top 5% of Coca-Cola’s most highly compensated employees can be gifted with equity to this extent, above and beyond their cash compensation and other benefits.

We are long-term investors and we want management to be well-rewarded if they do a great job for shareholders, but under the proposed plan the division of value tilts too far in favor of Coca-Cola’s management at the expense of shareholders. By increasing stock-option awards, shortening the award period and including lower performance hurdles, we believe the plan could lead to outsized rewards for management and increased dilution for shareholders. This is not in the best interest of Coca-Cola or its shareholders.

We look forward to the results of the balloting on the proposed equity plan and believe the final vote will show that there are many investors who share our concerns.

If there is significant opposition to the proposed equity plan, we believe the Coca-Cola board should consider whether it has a sufficient mandate from shareholders to fully implement the plan. Should the board proceed with the plan, we will be watching closely to see whether it is executed in a manner that serves shareholders’ interests and will continue to communicate our concerns.

Sincerely,

David J. Winters, CEO
Wintergreen Advisers, LLC
973-263-4500


Nine Points to Consider Before Voting on Coca-Cola’s 2014 Equity Plan

Wintergreen Advisers urges all shareholders to carefully consider the following items as they prepare vote on the plan.

  1. Coca-Cola’s proposed plan, unlike previous plans, allows an individual to receive more than 5% of the awards available under the plan.³
  2. The proposed plan permits the Compensation Committee to award "bonus shares" that are “not subject to any restrictions or conditions.
  3. The proposed plan includes 27 criteria that can potentially be used by the board to justify equity awards, many of which are not subject to any disclosed standard of success.⁵ In recent measurement periods, the hurdle rate that must be met to receive shares and options has been lowered. While the hurdle rate has been raised for the current measurement period, it is below what was required in previous periods.⁶
  4. The proposed plan allows Coca-Cola's Compensation Committee to “exclude” and “adjust” certain items from the evaluation of management performance.⁷ In football terms, this allows the Compensation Committee to move the goal posts closer once the ball is in the air.
  5. The proposed plan, when combined with previous plans, could dilute shareholders by up to 16.6%.
  6. The proposed plan, as envisioned by Coca-Cola, will result in the issuance of up to 340,000,000 shares and options.⁹ This represents a 21% increase in potential awards compared to the previous plan.¹⁰
  7. The proposed plan allows the Compensation Committee to issue these 340,000,000 shares and options over four years.¹¹ This time period is more than 33% shorter than the time period under the 2008 plan.¹²
  8. The proposed plan may require Coca-Cola to spend even more on share repurchases than the $1.3 billion it spent in 2013 in order to offset dilution.¹³ These 2013 buybacks comprised 27% of Coca-Cola’s “robust share repurchase program,”¹⁴ a figure that could rise under the proposed plan and divert a significant portion of the company’s cash flow away from more productive and profitable uses.
  9. Coca-Cola’s compensation policies get a low rating from a leading proxy advisory firm. Institutional Shareholder Services (ISS) gives Coca-Cola’s compensation policy a score of 8, near the bottom of the ISS scale.¹⁵

Footnotes:

  1. “Message and Q&A from our Chairman and CEO,” 2014 Coca-Cola proxy statement, page 5.
  2. Coca-Cola press release, March 28, 2014.
  3. 2008 Coca-Cola proxy statement, page 87.
  4. The Coca-Cola Company 2014 Equity Plan, page 14, article 13.1.
  5. 2014 Coca-Cola proxy statement, pages 87-88.
  6. 2014 Coca-Cola proxy statement, page 57.
  7. 2014 Coca-Cola proxy statement, page 88.
  8. 2014 Coca-Cola proxy statement, page 86; 16.6% calculation excludes Total Award Shares from denominator.
  9. Assumes 60/40 option/full value award split, per 2014 Coca-Cola proxy statement, page 86.
  10. 2008 Plan allowed 280,000,000 shares , 2-for-1 split adjusted; see 2008 Coca-Cola proxy statement, page 87.
  11. 2014 Coca-Cola proxy, page 85.
  12. 2008 Plan made grants from 2009 to 2014 and still has shares available.
  13. 2014 Coca-Cola proxy, page 86.
  14. Coca-Cola press release, March 28 2014.
  15. https://link.issgovernance.com/qs/free/31989.

 

THIS IS NOT A SOLICITATION OF DIRECT OR INDIRECT AUTHORITY TO VOTE YOUR PROXY. PLEASE DO NOT SEND US YOUR PROXY CARD; WINTERGREEN ADVISERS, LLC AND ITS AFFILIATES ARE NOT ABLE TO VOTE YOUR PROXIES AND THIS COMMUNICATION DOES NOT CONTEMPLATE SUCH AN EVENT.

THIS LETTER INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA ARE RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS LETTER. MANY OF THE STATEMENTS IN THIS LETTER REFLECT OUR SUBJECTIVE BELIEF.

THE INFORMATION CONTAINED HEREIN IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF THE COCA-COLA COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING THE COCA-COLA COMPANY AND ITS PROSPECTS BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. NEITHER WINTERGREEN ADVISERS, LLC, NOR ANY OF ITS AFFILIATES ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN.

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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Wintergreen Advisers Sends Second Letter to Warren Buffett on Coca-Cola Equity Plan

April 21, 2014 04:38 PM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- As investors continue to prepare to cast their proxy ballots ahead of the Coca-Cola Company (NYSE:KO) annual shareholders' meeting on April 23, David Winters, CEO of Wintergreen Advisers, sent a second letter to Coca-Cola's largest shareholder, Warren Buffett, CEO of Berkshire Hathaway (NYSE:BRK.B).

Winters wrote, "We do not believe it would be consistent with Berkshire's long ingrained culture to support such a plan at any of your equity holdings, much less one worth nearly $16 billion. If the proposed 2014 Coca Cola Equity Plan were to be approved by its shareholders, the implication for investment returns in our country may be devastating."

The full text of the letter is included below.


Wintergreen Advisers, LLC Letter to Warren Buffett

Warren E. Buffett
Berkshire Hathaway Inc.
3555 Farnam St.
Omaha, NE 68131

April 16, 2014

Dear Warren,

Over the years your conviction and passion for corporate diligence and responsibility has echoed through the American consciousness. Like Jiminy Cricket you sit on our shoulders reminding us to do what is right. Work hard, be fair, save for our future, stand up for what is right, and think like an owner. Now the United States and investors are at a crossroads. People of all political persuasions recognize the enormous disparity in financial wealth between the vast majority of Americans and the very top ranks of the corporate elite.

Millions of investors depend upon Coca-Cola as a staple in their financial security planning. Some invest directly in Coca-Cola, others invest in index or actively managed equity funds, and some invest indirectly through the investment vehicle most near and dear to your heart, Berkshire Hathaway. Whether in the initial formative years of saving, in the midst of their careers or in the payout period of a well-deserved retirement, there are millions of people who worked hard for their money and believed the promise that their money would work hard for them.

Later this month at the company’s annual meeting, shareholders will vote to determine whether they will transfer a meaningful portion of Coca-Cola’s intrinsic value from the shareholders to the top five percent of the company’s employees. The proposed equity plan, when combined with existing plans, could dilute all Coca-Cola shareholders by taking up to 16.6% of the value of each share, worth $6.67 per Coca-Cola share at last night’s closing price of $40.18, and handing it to the top 5% of Coke management. If Coke uses the share repurchase program to offset the issuance of these shares as they have done in recent years, shareholders will be further damaged. The company may have to divert approximately $2 billion per year (one-quarter of its free cash flow) from productive uses to offsetting dilution. To a business with a 27% return on equity, the opportunity cost of spending $2 billion per year to offset dilution is enormous.

As you stated in your 2013 letter to Berkshire shareholders,

Meanwhile, stock repurchases at Coca-Cola and American Express raised our percentage ownership. Our equity in Coca-Cola grew from 8.9% to 9.1%...And, if you think tenths of a percent aren’t important, ponder this math: For the four companies in aggregate, each increase of one-tenth of a percent in our share of their equity raises Berkshire’s share of their annual earnings by $50 million.

Coca-Cola repurchased 121 million shares in 2013, but turned around and issued 54 million shares and options to management, reducing the share count by only 67 million shares. Now realize that if Coca-Cola hadn’t issued those 54 million shares to executives, Berkshire’s ownership of Coca-Cola would now be 9.2% instead of 9.1% and Berkshire’s share of Coca-Cola’s earnings would be $10 million larger. We agree with you - one tenth of a percent IS a big deal to Berkshire! With the proposed 2014 Equity Plan potentially issuing more shares in fewer years than previous equity compensation plans, this dilution headwind to Berkshire and all Coca-Cola shareholders will likely only grow worse.

In the 52 years you have been Chairman and CEO, you have not implemented such a dilutive compensation plan at Berkshire Hathaway, and it is unthinkable that you ever will. We do not believe it would be consistent with Berkshire’s long ingrained culture to support such a plan at any of your equity holdings, much less one worth nearly $16 billion. If the proposed 2014 Coca Cola Equity Plan were to be approved by its shareholders, the implication for investment returns in our country may be devastating.

We believe that approval of the proposed Coca-Cola plan will harm the returns of all Coca-Cola shareholders, including Berkshire. If the proposed plan becomes the model for subsidiaries within Berkshire, the financial returns for all Berkshire shareholders would be dramatically diminished. Similar plans implemented by more companies in the S&P 500 Index could starve index fund owners of their expected returns. Investors who vote for these excessively dilutive plans risk becoming enablers in the spiral of ever-higher executive pay.

With enough shares remaining under existing plans to function well for another year, Coca-Cola does not need a new plan at this time. Coca-Cola’s board of directors should take the time to rethink and refine the proposed equity plan in a manner that will be fair and reasonable from the perspective of both shareholders and employees.

We believe that Coca-Cola’s proposed 2014 Equity Plan is bad for Berkshire Hathaway, bad for Coca-Cola, and bad for the investment outlook for U.S. companies. This is a moment in time when America again looks to you to continue to stand up for what is best for our corporations and our country, just as you have talked about and done for decades. Coca-Cola and Berkshire shareholders, and in reality all of America, are counting on you to demand that shareholders be treated as partners instead of piggy banks. This is an opportunity to champion the true owners of American businesses – the shareholders.

Regards,

David J. Winters, CEO
Wintergreen Advisers, LLC
973-263-4500

THIS IS NOT A SOLICITATION OF DIRECT OR INDIRECT AUTHORITY TO VOTE YOUR PROXY. PLEASE DO NOT SEND US YOUR PROXY CARD; WINTERGREEN ADVISERS, LLC AND ITS AFFILIATES ARE NOT ABLE TO VOTE YOUR PROXIES AND THIS COMMUNICATION DOES NOT CONTEMPLATE SUCH AN EVENT.

THIS LETTER INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA ARE RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS LETTER. MANY OF THE STATEMENTS IN THIS LETTER REFLECT OUR SUBJECTIVE BELIEF.

THE INFORMATION CONTAINED HEREIN IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF THE COCA-COLA COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING THE COCA-COLA COMPANY AND ITS PROSPECTS BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. NEITHER WINTERGREEN ADVISERS, LLC, NOR ANY OF ITS AFFILIATES ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN.

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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David Winters Discussed the Coca-Cola Compensation Plan
with Liz Claman on Fox Business

April 16, 2014

David Winters appeared on Fox Business Network's "Countdown to the Closing Bell" with Liz Claman, and discussed his opposition to Coca-Cola’s 2014 equity compensation plan. Winters said, "Coca-Cola is a good company with a bad equity plan."

 

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Wintergreen Advisers Urges All Investors to Review
Coca-Cola’s 2014 Equity Plan Before Voting

Fiduciaries should conduct an independent analysis, not rubber-stamp recommendations of proxy advisors

April 15, 2014 07:00 AM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- As investors prepare to cast their proxy ballots ahead of the Coca-Cola Company (NYSE:KO) annual shareholders’ meeting on April 23, David Winters, CEO of Wintergreen Advisers, today sent the following letter to Coca-Cola’s top 25 institutional shareholders, urging them to carefully review the Coca-Cola 2014 equity plan before they vote.

“Every fiduciary has a responsibility to consider the impact of Coca-Cola’s proposed equity plan,” Mr. Winters said. “Proxy advisers will make recommendations, but ultimately it is up to the fiduciaries or other executives of each institutional investor to vote based on what they think is best for their investors. I urge these executives not to outsource their fiduciary responsibility: Read the plan, read our analysis and reach your own conclusions.”

The letter is being sent to the following individuals, listed in order of share ownership in The Coca-Cola Company, are:

  • Warren E. Buffett, CEO, Berkshire Hathaway (NYSE: BRK.B)
  • F. William McNabb III, Chairman & CEO, Vanguard
  • Laurence D. Fink, Chairman & CEO, BlackRock (NYSE: BLK)
  • Joseph L. Hooley, President & CEO, State Street Corporation (NYSE: STT)
  • Edward Johnson III, Chairman & CEO, Fidelity Investments
  • James Rothenberg, Chairman, Capital Group
  • Frederick H. Waddell, Chairman & CEO, Northern Trust Co. (NASDAQ: NTRS)
  • Gerald L. Hassell, Chairman & CEO, Bank of NY Mellon (NYSE: BK)
  • Donald Yacktman, President, Yacktman Asset Management
  • Brad Hilsabeck, CEO, Grantham Mayo Van Otterloo
  • Jeff Raikes, CEO, The Bill & Melinda Gates Foundation
  • Anshu Jain, Co-CEO, Deutsche Bank (NYSE: DB)
  • Yngve Slyngstad, CEO, Norges Bank Investment Management
  • Fayez Sarofim, Chairman, Fayez Sarofim & Co.
  • Vince Gubitosi, President & Chief Investment Officer, Geode Capital Management
  • James Dimon, Chairman & CEO, J.P. Morgan Chase (NYSE: JPM)
  • Brian T. Moynihan, CEO, Bank of America (NYSE: BAC)
  • Edward B. Rust, Jr. Chairman & CEO, State Farm Mutual Auto Insurance Co.
  • Richard Rossi, President, Eagle Asset Management
  • Roger W. Ferguson Jr, President & CEO, TIAA-CREF
  • Mark Zinkula, CEO, Legal & General Investment Management (LSE: LGEN)
  • James Kennedy, President & CEO, T Rowe Price Group (NYSE: TROW)
  • Sergio Ermotti, CEO, UBS AG (NYSE: UBS)
  • Gregory E. Johnson, Chairman & CEO, Franklin Resources (NYSE: BEN)

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)


Wintergreen Advisers, LLC Letter to Institutional Shareholders of Coca Cola

April 15, 2014

To My Fellow Institutional Shareholders:

At this moment, Coca-Cola shareholders are being asked to approve Coca-Cola’s 2014 Equity Plan, which we believe is deeply flawed and contrary to shareholders’ interests.

Wintergreen Advisers, LLC’s clients own more than 2.5 million shares of Coca-Cola and we have expressed our concerns about the Plan by writing letters to Coca-Cola’s Board of Directors, its largest shareholder, Berkshire Hathaway, and certain other institutional investors. We have also communicated our concerns in our presentation earlier this month.¹

We urge all institutional investors to review Coca-Cola’s proposed plan for themselves before they decide how they will vote.

I am writing today to urge you, the institutional shareholders in Coca-Cola, as fiduciaries for many thousands of individual investors, retirement funds, union and other pension plans to undertake a careful, thorough and independent review of Coca-Cola’s proposed plan before casting your vote.

Existing equity plans at the Coca-Cola Company are more than adequate to meet the Company’s needs. There are 66,948,651 awards remaining under existing Coca-Cola equity plans, enough to last another year at the recent pace of 65 million awards per year.²

It has become a common practice in recent years for institutional investors to rely on the recommendations of proxy advisory firms when voting on shareholder matters, the largest being Institutional Shareholder Services (“ISS”). Following these recommendations to award shares as part of a new Coca-Cola equity plan without performing your own due diligence would, in our view, be a disservice to the investors that you represent and serve.

We believe the methodology described in the ISS publicly available proxy guidelines understates the true cost to shareholders of Coca-Cola’s equity plan.

The ISS proxy-voting guidelines state that ISS, while reviewing each plan on its own merits, will generally vote against plans in which the total cost is “unreasonable” and which have a three-year burn rate exceeding the burn rate cap of its industry peers.³

ISS uses what it calls “shareholder value transfer” (SVT) to assess the cost of a plan, and will consider a plan “reasonable” if it does not exceed a threshold ISS calculates based on other companies in the industry.

The use of peer-group comparisons as a fundamental analytical tool carries an embedded bias that can result in increasingly expensive plans. To the extent every board wants to be in the top half or third of its peer group, equity plan costs will continue to rise.

Warren Buffett of Berkshire Hathaway, Coca-Cola’s largest shareholder, has warned against this trend:

“The drill is simple: Three or so directors – not chosen by chance – are bombarded for a few hours before a board meeting with pay statistics that perpetually ratchet upwards. Additionally, the committee is told about new perks that other managers are receiving. In this manner, outlandish “goodies” are showered upon CEOs simply because of a corporate version of the argument we all used when children: “But, Mom, all the other kids have one. When comp committees follow this “logic,” yesterday’s most egregious excess becomes today’s baseline.”

The ISS guidelines support equity plans that have a “burn rate” (a measure of how rapidly shares are issued under the plan) that is within peer-group norms. The guidelines also include a minimum burn rate cap of 2%, which essentially rubber-stamps any equity plan that dilutes shareholders by “only” 2% per year.⁵ Wintergreen believes that 2% annual dilution from management equity awards is excessive for a slow-growth company such as Coca-Cola.

In addition, the level of SVT determined by ISS is an unacceptably high cost for shareholders to bear. For Coca-Cola and others in its sector, ISS sets the acceptable SVT threshold at 9 percent, according to published reports,⁶ which in Wintergreen’s view is an excessively high transfer of shareholder wealth.

There are many different ways of calculating the true cost shareholders pay for equity plans. Investors need to be cognizant of not only the share dilution caused by equity plans, but also the cash cost of repurchasing these shares to offset dilution. There is also the opportunity cost of not using that cash for more productive purposes, such as reinvesting it in the business.

In Coca-Cola’s case, we believe that the company may need to spend $2 billion per year to offset dilution. The failure to use that $2 billion more productively could mean billions of dollars in future earnings will never be realized. Over the past three years, Coca-Cola’s average return on equity has been 27%.⁷ This means that if Coca-Cola retained that annual $2 billion, it could potentially grow earnings by $540 million each year. These are real costs that need to be considered by investors.

Coca-Cola’s 2014 proposed equity plan appears to fall short of publicly available ISS guidelines in a number of areas.

Although the ISS report on Coca-Cola’s 2014 proxy is not available to the public, an analysis of ISS standards as stated on its website suggests the Coca-Cola plan falls short in several important respects

We believe that

  • The Coca-Cola plan fails to meet the ISS standard for linking pay to performance, because Coca-Cola has lowered its performance targets for management over the past two performance periods. While the targets were modestly raised for the current performance period, they are still below historical levels.⁸
  • The fact that every named officer at Coca-Cola has received more equity option grants over each of the past two years,⁹ even as Coke’s performance has failed to meet targets, demonstrates that Coke is not properly linking pay to performance.
  • The proposed plan fails to meet the publicly available ISS standard for investors that manage union pension plans under the Taft-Hartley Act. The proposed equity plan far exceeds the maximum acceptable voting power dilution under ISS Taft-Hartley guidelines of 10% over ten years.¹⁰
  • The proposed Plan may also fall short of Taft-Hartley guidelines that discourage excessive pay practices because it does not have a cap on the amount of equity that can be awarded to an individual. Prior Coca-Cola equity plans limited the maximum award to any single employee to 5% of the plan.

Coca-Cola’s compensation practices have been given a poor grade by ISS.

Publicly available information from ISS gives Coke’s compensation practices a low ranking.¹¹ On a range of 1 to 10, where 1 is the best and 10 the worst, Coca-Cola earned an 8, close to the bottom of the ISS scale. A detailed evaluation of Coke’s governance policies that lead to this ranking by ISS is available only to ISS customers and Coca-Cola.

It is difficult to see how ISS can give Coke a near-failing grade on its compensation policy yet still recommend to investors that they vote for an equity plan that could produce a windfall for management and huge dilution for owners.

Sincerely,

David J. Winters, CEO
Wintergreen Advisers, LLC


Notes:

  1. The presentation is available at: http://wintergreenadvisers.com/pdf/Wintergreen_KO_FINAL_040214.pdf
  2. Coca-Cola 2014 proxy statement, page 87.
  3. ISS U.S. Proxy Voting Summary Guidelines, March 2014, page 42.
  4. 2005 Berkshire Hathaway annual report
  5. ISS U.S. Proxy Voting Summary Guidelines, March 2014, page 44.
  6. Coca-Cola’s Stock Handouts get New Coke Reaction,” Reuters BreakingViews, April 9, 2014.
  7. Return on equity figure sourced from Bloomberg
  8. See page 57 of the 2014 Coca-Cola proxy statement.
  9. See page 68 of the 2014 Coca-Cola proxy statement, page 71 of the 2013 Coca-Cola proxy statement, and page 61 of the 2012 Coca-Cola proxy statement.
  10. ISS 2014 Taft-Hartley U.S. Proxy Voting Guidelines, page 28.
  11. https://link.issgovernance.com/qs/free/31989

 

THIS IS NOT A SOLICITATION OF DIRECT OR INDIRECT AUTHORITY TO VOTE YOUR PROXY. PLEASE DO NOT SEND US YOUR PROXY CARD; WINTERGREEN ADVISERS, LLC AND ITS AFFILIATES ARE NOT ABLE TO VOTE YOUR PROXIES AND THIS COMMUNICATION DOES NOT CONTEMPLATE SUCH AN EVENT.

THIS LETTER INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA ARE RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS LETTER. MANY OF THE STATEMENTS IN THIS LETTER REFLECT OUR SUBJECTIVE BELIEF.

THE INFORMATION CONTAINED HEREIN IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF THE COCA-COLA COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING THE COCA-COLA COMPANY AND ITS PROSPECTS BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. NEITHER WINTERGREEN ADVISERS, LLC, NOR ANY OF ITS AFFILIATES ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN.

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David Winters Discussed the Coca-Cola Compensation Plan with Yahoo Finance

April 11, 2014

David Winters was interviewed by The Daily Ticker’s Aaron Task about his opposition to Coca-Cola’s 2014 equity compensation plan.

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Wintergreen Advisers Welcomes Vote by Calvert Investments
Against Coca-Cola Equity Plan

April 10, 2014 03:13 PM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- David Winters, CEO of Wintergreen Advisers, today issued the following statement:

“We welcome the news that Calvert Investments has voted against the Coca-Cola (NYSE: KO) Equity Plan. Wintergreen Advisers continues to believe that the plan is deeply flawed and unfair to shareholders.”

Information on the Calvert Investments vote is available at:
http://vds.issproxy.com/SearchPage.php?CustomerID=1641

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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Wintergreen: Pleased That the Ontario Teachers’ Pension Plan Is Voting
Against Coca-Cola’s 2014 Equity Compensation Plan

April 8, 2014 04:25 PM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- David Winters, CEO of Wintergreen Advisers, today issued the following statement:

“We are very pleased that the Ontario Teachers’ Pension Plan has announced they are voting against the Coca-Cola (NYSE: KO) 2014 Equity Plan. We believe a growing number of investors, large and small, are recognizing that the Coca-Cola plan is not in the best interest of shareholders.”

Information on the Ontario Teachers’ Pension Plan is available at:
http://www.otpp.com/investments/responsible-investing/voting-our-shares/proxy-votes

Contacts:
Wintergreen Advisers, LLC
David J. Winters
973-263-4500
press@wintergreenadvisers.com

Bryant Park Financial Communications
212-719-7535
Richard Mahony (rmahony@bryantparkfc.com)
Claire Currie (ccurrie@bryantparkfc.com)

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David Winters discusses the Coca-Cola equity compensation plan on CNBC

April 3, 2014

David Winters talks about Coca-Cola's 2014 equity compensation plan with Bill Griffeth, Kelly Evans, and Sara Eisen on CNBC’s "Closing Bell."

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Wintergreen: Coca-Cola’s Equity Compensation Plan is a ‘Big Grab’ by Management

David Winters rebuts Coca-Cola’s defense of its plan for up to $13 billion in additional equity awards, calling the proposal ‘potentially highly dilutive’ and ‘grossly outsized’

April 2, 2014

NEW YORK -- (BUSINESS WIRE) -- David Winters, CEO of Wintergreen Advisers, said the response by The Coca-Cola Company (NYSE: KO) to Wintergreen’s criticism of its proposed 2014 equity compensation plan was "disappointing, defensive and inadequate."

Mr. Winters made the comments during a webcast for fiduciaries, analysts and the media in which he provided details of Wintergreen’s analysis of the Coca-Cola 2014 Equity Plan. The call followed Wintergreen’s March 21, 2014 letter to the board of directors in which it characterized the proposed plan as an "excessive transfer of wealth" from Coca-Cola shareholders to the top five percent of the company’s management.

In reviewing his firm’s analysis and Coca-Cola’s response, Winters said his firm would vote against the 2014 Equity Plan because it believes the plan is:

  • Potentially highly dilutive to shareholders
  • Unsupported by any strategic rationale
  • Unnecessary, since adequate capacity exists under Coca-Cola’s current plans
  • Inadequately disclosed in the proxy materials
  • Grossly outsized for a company with earnings growth in the single digits
  • A bad precedent for corporate America

 

      View the Presentation (PDF) Listen to the Webcast (WMA | MP3)      

 

Contacts:
Wintergreen Advisers, LLC
David J. Winters
press@wintergreen.com
973-263-4500

Bryant Park Financial Communications
Judith Flynn
jflynn@bryantparkfc.com/br> 212-719-7535

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Wintergreen Advisers to Hold Informational Webcast on
Coca-Cola’s Equity Compensation Plan

April 2, 2014

NEW YORK -- (BUSINESS WIRE) -- Wintergreen Advisers, LLC, which on behalf of its clients beneficially owns over 2.5 million shares of The Coca-Cola Company (“Coke”), (NYSE: KO), today announced it will hold an informational webcast regarding Coke’s 2014 Equity Compensation Plan, which is now before shareholders for approval.

The webcast is open to institutional investors, including those that are Coke shareholders; Coke bottlers and employees; as well as corporate governance analysts and members of the media.

DATE: Wednesday, April 2, 2014
TIME: 12:00 pm, EDT
WEBCAST: The event will be accessible via live webcast on WebEx by logging on directly to: https://thebiggrab.webex.com

An audio-only version of the event can be accessed by calling: 1-415-655-0003 User Passcode: 669817444 (required).

A live Q&A period will follow the presentation, and those wishing to ask questions anonymously will have the option to do so via the WebEx meeting.

Participants are advised to register in advance, as capacity is limited.

A copy of the presentation materials and an audio recording of the webcast will also be available for download following the completion of the presentation at: http://www.wintergreenadvisers.com

Copies of Wintergreen Advisers’ letters to the Coke Board of Directors and Warren E. Buffett are available at: http://www.wintergreenadvisers.com.

 

Contacts:
Wintergreen Advisers, LLC
press@wintergreen.com
973-263-4500

Bryant Park Financial Communications
jflynn@bryantparkfc.com
212-719-7535

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Wintergreen Advisers, LLC Urges Coca-Cola Board of Directors to Withdraw Proposed 2014 Equity Compensation Plan, Put Forward an Improved Plan for Consideration in 2015

March 27, 2014 02:00 PM Eastern Daylight Time

NEW YORK -- (BUSINESS WIRE) -- Wintergreen Advisers, LLC expands upon concerns with Coca-Cola’s (NYSE:KO) proposed 2014 Equity Plan in letters to Coca-Cola shareholders and the Coca-Cola Board of Directors and Warren Buffett

Dear Fellow Coca-Cola Shareholders,

Wintergreen Advisers, LLC on behalf of its clients has asked the Board of Directors and the Compensation Committee of The Coca-Cola Company to withdraw the proposed 2014 Equity Plan from shareholder consideration at the 2014 Shareholder Meeting. We believe the proposed Plan should be redesigned in a manner which is fair to both Coca-Cola shareholders and Coca-Cola management. Existing Coca-Cola equity plans contain more than 66 million shares which should be more than adequate to cover awards for 2014. The full text of the letter, which has been sent to Coca-Cola’s Board of Directors and Coca-Cola’s largest shareholder Warren Buffett, CEO of Berkshire Hathaway (NYSE:BRK.B), is included below.

For questions or inquiries, please contact press@wintergreen.com or 973-263-4500


Wintergreen Advisers, LLC Letter to Coca Cola Board of Directors

Board of Directors
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, GA 30313


March 27, 2014

Dear Fellow Coca-Cola Shareholders,

In our prior communications, Wintergreen Advisers, LLC (“Wintergreen”) relied solely on The Coca-Cola Company’s (“Coca-Cola” or “the Company”) 2014 proxy statement and the Company’s 2014 Equity Plan (the “Plan”) to inform ourselves on the issue at hand.  The “single number” we pulled from the Company’s proxy statement, the 14.2% potential dilution figure from page 86, is in our minds the single most important number found in the filing, as it represents the portion of shareholder wealth which could be transferred to management for services rendered.  With share awards adequate to last for another year available under previous equity plans, we do not believe there is a need for Coca-Cola to seek shareholder approval for a new plan at this time.

Let us be very clear – we love The Coca-Cola Company.  It is a solid company with many of the world’s most valuable brands; it possesses a deep economic moat; and it has generally strong management.  It has all the attributes of a wonderful long-term investment, as evidenced by the Company’s lengthy history as a widely-held public company.  But the proposed 2014 Equity Plan is a bad plan.  It is bad for all shareholders. It is bad for the approximately 95% of Coca-Cola employees who will not be eligible to participate in this plan.  We are perfectly happy to see managers who produce outstanding results be very well compensated.  But asking for nearly 8% of the company over the next 4 years, on top of the potential dilution from outstanding equity awards, is simply too much.

I propose that the Board of Directors (“the Board”) withdraw the 2014 Equity Plan from consideration at the 2014 Annual Meeting of Shareholders.  Coca-Cola’s Board and Compensation Committee should rely on existing equity plans which, according to the Company’s proxy statement, have 66,948,651 shares remaining, which should suffice to cover awards for another year.  This will provide the Board with time to design an improved plan which can be proposed for a vote at the 2015 Shareholders Meeting.

The new plan should include many of the same positive attributes that the Board recently touted – no re-pricing of options, a fungible share pool, and claw-back provisions.  It should have publicly disclosed and clearly defined performance hurdles for named executives which must be met to be eligible for awards.

The current Plan discloses only the criteria which may be used as performance goals, but does not disclose the hurdle rate for those criteria.  How can shareholders judge the fairness of a performance award if we don’t know if the executive is required to clear a six inch hurdle or a six foot hurdle?  These performance goals should also take the Company’s amount of debt into consideration, a criteria currently absent from the list.  Coca-Cola’s debt level has increased significantly in recent years, and the impact of that debt should be accounted for when evaluating executive performance.

As far as what size is appropriate for a revised equity plan, we think the plan should envision an annual dilution rate at or below the recent annual average of 1.3% rather than the proposed Plan’s 1.9%. Although the difference between 1.3% and 1.9% dilution may seem trivial on its face, the difference translates into an additional 26 million shares of potential dilution per year. The 2008 Plan authorized a split-adjusted 280,000,000 for awards and lasted for approximately six years; the 2014 proposal envisions 340,000,000 grants being made over only four years.  This is a dramatic increase in the number of potential awards, made over a much shorter number of years. This means increased potential dilution for all shareholders.  The 2008 Plan also included a provision that no individual could be awarded more than 5% of the shares authorized by the plan, a clause notably absent from the 2014 Plan.  We believe Coca-Cola’s shareholders would be better served by something much more closely resembling the 2008 Plan in duration and size than the 2014 Plan.

When details of a new equity plan are disclosed, we believe Coca-Cola should present the potential dilutive impact in a more candid manner.  Currently, the Company calculates dilution by including “total award shares” in addition to current outstanding shares in the denominator, a formula found on page 86 of the Company proxy and which is replicated below.

Potential dilution = Total Award Shares = 14.2%
Total number of issued and outstanding shares of Common Stock + Total Award shares

We believe this is misleading.  The true potential dilutive impact of an equity plan is diminished by including award shares in the denominator as opposed to using only current outstanding shares.  If potential dilution were to be calculated in a more straightforward manner, by excluding Award Shares from the denominator, the 14.2% figure from page 86 of the proxy statement would rise to approximately 16.6%, as shown below.

Potential dilution = Total Award Shares = 16.6%
Total number of issued and outstanding shares of Common Stock

By calculating potential dilution in the manner the Company has, we believe the combined potential dilutive impact of the prior plans and 2014 Plan could be understated by several billion dollars.  While 14.2% of Coca-Cola is worth approximately $24 billion at today’s share price, 16.6% is worth approximately $28 billion, an additional $4 billion in potential value that shareholders are being asked to give to management.  In 2001 the SEC noted that “overhang” from equity compensation plans is “often expressed as a percentage of the total number of outstanding securities. ”  Although this is not a formal SEC rule, it clearly provides a truer picture of the dilutive impact of equity compensation plans than the method currently used by Coca-Cola.  General Electric is another prominent American company which has chosen to disclose potential dilution in this manner and we hope that Coca-Cola would follow suit.  We believe that the Company should disclose the critically important potential dilution number in a more straightforward and prominent manner - front and center within your proxy statement, rather than burying it 86 pages deep where most shareholders are unlikely to see it.

No matter how the potential dilutive impacts of the Coca-Cola’s equity compensation plans are calculated, the impact is clear – there will potentially be a staggeringly large transfer of wealth from shareholders to management at a time when we believe Company’s results have been less than stellar.  Between existing plans and the proposed 2014 Plan, there is the potential for several percentage points of dilution each year.  This would directly reduce shareholder returns by a similar amount each year.  It is hard to see how this proposed Plan is in the best interests of the Coca-Cola Company, its investors, or corporate America, which may mimic such pay practices.

We hope these issues can be resolved quickly and to the satisfaction of concerned shareholders so that the Company may get back to the business of growing volumes and profits.

Sincerely,
David J. Winters, CEO
Wintergreen Advisers, LLC.
973-263-4500

Cc: Warren E. Buffett

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David Winters appeared on Fox Business to discuss his opposition to Coca-Cola’s equity compensation plan

March 24, 2014

David Winters discusses his opposition to Coca-Cola's compensation plan with Maria Bartiromo on Fox Business Network's "Opening Bell."

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Wintergreen Advisers, LLC Expresses Disappointment with
Coca-Cola’s Proposed 2014 Equity Plan

March 21, 2014 09:20 PM Eastern Daylight Time

NEW YORK, N.Y. --(BUSINESS WIRE)--Wintergreen Advisers, LLC details concerns with Coca-Cola’s (NYSE: KO) proposed 2014 Equity Plan in letters to Coca-Cola shareholders and the Coca-Cola Board of Directors and Warren Buffett

Dear Fellow Coca-Cola Shareholders,

Wintergreen Advisers, LLC on behalf of its clients expresses its deep disappointment with Coca-Cola’s proposed 2014 Equity Plan. As further detailed in the attached letters to the Coca-Cola board of directors and Berkshire Hathaway CEO Warren Buffett, Wintergreen Advisers believes this plan to be an unnecessarily large transfer of wealth from Coca-Cola’s shareholders to members of the Company’s management team. We can find no reasonable basis for gifting management 14.2% of the share capital of Coca-Cola, worth $24 billion at today’s share price. No matter how well a management team performs, it is unfathomable that they would require such astronomical sums of money to provide motivation. As representatives of the shareholders, it is the number one priority of the board to look after the owners’ interests. This compensation plan appears to place the economic well-being of management far ahead of the interests of the Company’s owners.

Although the Company has a “robust” share repurchase plan, we believe that a large portion of those repurchased shares will likely be allocated to satisfying the issuance demands of the proposed Plan. The purpose of the Company’s share repurchase plan should be to shrink the number of shares outstanding and increase value on a per share basis, not merely serve to offset share issuance to Company executives. We also believe that Article 13.1 of the 2014 Equity Plan, which allows the Compensation Committee to award shares to management “purely as a ‘bonus’ and not subject to any restrictions or conditions” is an excessively large amount of power to delegate to a select few members of the board. While such a practice may be an “industry norm,” we expect a greater show of leadership from one of the world’s preeminent corporations. Coca-Cola should be the industry leader for best practices in corporate governance and pay practices; the 2014 Equity Plan clearly falls far short of this bar.

Attached please see a video from Wintergreen Advisers CEO and Portfolio Manager David Winters discussing these issues.

For questions or inquiries, please contact info@wintergreen.com or 973-263-4500


Wintergreen Advisers, LLC Letter to Coca Cola Board of Directors

Board of Directors
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, GA
30313

March 21, 2014

Dear Coca-Cola Board Members,

On behalf of our clients, Wintergreen Advisers, LLC (“Wintergreen”) owns over 2.5 million shares of The Coca-Cola Company (“Coke,” “Coca-Cola,” or “the Company”), Wintergreen Advisers writes today to express our disappointment with the Company’s proposed 2014 Equity Plan (“the Plan”). The Company’s Board of Directors is asking shareholders to approve an equity compensation plan which, we believe, will significantly erode the per-share value of Coca-Cola shares. If approved, this Plan in conjunction with previous equity compensation plans, will dilute existing shareholders by a Company estimated 14.2%. The Company expects that the 2014 Plan will award a mix of 60% options, 40% full value shares, resulting in the issuance of 340,000,000 Coca-Cola shares. At the current share price, these shares would be worth approximately $13 billion. In effect, the Board is asking shareholders for approval to transfer approximately $13 billion from all of our pockets to the Company’s management over the next four years. When combined with awards from previously approved compensation plans, this figure rises to $24 billion. This is a staggering transfer of value from shareholders to management. Shareholders are in effect being asked to give Coca-Cola management, at no cost to management, 14.2% of the Company. These billions of dollars given to management will come at the sole expense of the many teachers, nurses, federal and state government employees, and union members who have invested their hard-earned savings in Coca-Cola shares, either directly or through pensions and mutual funds.

The proposed Plan will meaningfully increase the number of Coca-Cola shares outstanding, reducing the ownership stake of all shareholders in the Company. At a time when Coke is facing slowing growth in both sales and profit, we do not believe it is in the best interest of shareholders to compound the Company’s headwinds by significantly diluting shareholders. Coca-Cola is a mature business in a low-growth industry. By necessity, a large portion of the Company’s growth in per-share earnings and value must come from shrinking the number of shares outstanding, so that each share is entitled to a larger share of the Company’s profits. The Company had been on the path to doing just this, with a share repurchase program totaling 500 million shares, 11% of shares outstanding, announced just 17 months ago. Now instead of meaningfully reducing shares outstanding and growing value on a per-share basis, this share repurchase program will merely help to offset the new shares issued to management under the Plan. Rather than shrinking the number of slices in the pie and increasing the size of each our slices, management wants to take a $13 billion bite out of the pie, at the expense of all shareholders. When the share repurchase program was announced in October 2012, current Coke Chairman and CEO Muhtar Kent said that it “underscores our continued commitment to delivering increased value to shareholders.” It now seems that the Company’s executives are more interested in increasing the value of their own accounts, with shareholders footing the bill.

From a shareholders perspective, the details of the Plan itself are not any more appealing than the idea of transferring 14.2% of the Company to management. For example, the Plan allows the Company’s Compensation Committee to ignore the impact of such things as asset write-downs and impairment, reorganization and restructuring expenses, and extraordinary non-recurring items when determining whether or not management has met their performance goals. Who but management could possibly bear responsibility for these types of expenses, and why should management not equally share the pain of their impact along with shareholders? If a company takes a write-down or impairment charge, it is usually due to past business decisions made by management; why should these decisions then be ignored when it comes time to determine the compensation of those individuals who made those decisions?

The Plan also allows participants to be awarded up to 3,000,000 share options, 3,000,000 stock appreciation rights, and 1,000,000 shares of common stock each year, in addition to their cash compensation. On top of this, the Plan allows the Compensation Committee of the board to grant “without limitation Shares awarded purely as a ‘bonus’ and not subject to any restrictions or conditions.” This could lead to Coca-Cola executive’s earnings tens or even hundreds of millions of dollars in a single year. We do not believe there is any justifiable reason to allow for the possibility of such excessive compensation.

In summary, Wintergreen Advisers believes the proposed Coca-Cola 2014 Equity Plan is a raw deal for all shareholders. It will serve to enrich a small number of Coca-Cola executives, while significantly diluting existing shareholders and diminishing the per-share value of all Coca-Cola shares. Particularly at a time of slowing growth for the Company, shareholders cannot afford to transfer 14% of their ownership in Coca-Cola to management. Coca-Cola remains a world class company with some of the most valuable brands in the world. The economics of the underlying business are as strong as ever. The proposed 2014 Equity Plan, however, presents a headwind that we believe will harm Coca-Cola as an investment. The proposal is an excessive transfer of wealth from its shareholders, the true owners of Coca-Cola, to Company management, and we believe it should be voted down by shareholders.

Sincerely,
David J. Winters, CEO
Wintergreen Advisers, LLC.
973-263-4500


Wintergreen Advisers, LLC Letter to Warren Buffett

Warren E. Buffett
Berkshire Hathaway Inc.
3555 Farnam St.
Omaha, NE
68131

March 21, 2014

Dear Warren,

On behalf of our clients, we are fellow shareholders of Coca-Cola, as well as Berkshire Hathaway (NYSE: BRK.B). As the largest owner of Coca-Cola stock, you are almost certainly aware that the company is seeking shareholder approval for a new equity compensation plan at their 2014 shareholder meeting. It is our belief that Coca-Cola will be best served by shareholders voting against approval of the new plan, for the reasons laid out below. Over the course of your career, you have spent a great deal of time discussing the importance of management compensation and proper alignment of managements interests with those of shareholders. The excessive compensation of management and the expense it imposes upon long-term shareholders has been a topic you have frequently touched upon. As you review the details of Coke’s new equity compensation proposal in their proxy statement, I believe you will find that it contains elements of both misalignment of management and shareholder interests and excessive compensation. This new equity compensation plan, when combined with existing equity compensation plans, could dilute existing shareholders by more than 14% according to Coca-Cola’s own calculations. You will not need your calculator to estimate the worth of that 14% stake and the value the share issuance could transfer from shareholders to management. It will likely also negate much of the Company’s current 500 million share repurchase program, making it all the more difficult to grow Coca-Cola’s value on a per-share basis.

On top of the sheer magnitude of dollars of this plan, the proposed plan allows Coca-Cola’s Compensation Committee to exclude things such as write-downs, impairments and other extraordinary nonrecurring items when deciding whether or not management has met the performance goals required to trigger their pay day. They can, in effect, move the goal posts closer once the ball is in the air. Buried deep within the plan document (and seemingly excluded from the proxy statement itself) is the fact that the proposal also allows the Compensation Committee to award “bonus” shares which are “not subject to any restrictions or conditions.” This hardly appears to be the “pay for performance” type of compensation which is so critical to incenting management to create long term per-share value for shareholders.

You have often decried how excessive compensation is so difficult to reign in precisely because shareholders have no direct voice in the negotiation with management and because Compensation Committees are often comprised of lap dogs rather than Dobermans. In this situation, with Berkshire as the largest shareholder of the company in question, you hold significant sway over the process. We believe Coca-Cola is setting a poor precedent with regard to corporate pay practices with this proposal, and as a leading global corporation, others will inevitably and unfortunately follow their lead.

We believe that the shareholders of Coca-Cola, including Berkshire Hathaway, will be best served by shareholders voting down Coca-Cola’s Equity Plan proposal.

Regards,
David J. Winters, CEO
Wintergreen Advisers, LLC
973-263-4500

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