News Column

Wintergreen Urges Coca-Cola to Address Conflicts Amid Buyout Speculation

June 17, 2014

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.

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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

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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



Wintergreen Advisers, LLC

David J. Winters, 973-263-4500

press@wintergreenadvisers.com

or

Bryant Park Financial Communications

Richard Mahony, 917-257-6811

rmahony@bryantparkfc.com

or

Claire Currie, 212-719-7535

ccurrie@bryantparkfc.com

Source: Wintergreen Advisers, LLC


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