Committee Chairs of the Board of Directors
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,
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
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
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
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
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.
Cc: Board of Directors
1 Fortune, "
2 2013 Berkshire Hathaway Annual Report, page 3
3 The New York Times, “Buffett’s Kind of Deal” by
4 HJ Heinz proxy statement,
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