Tag Archives: Coke

CASE STUDY Activist Action on Coke 2014 Proxy


We are taking up from the last post http://csinvesting.org/2016/07/25/major-analyst-exam-reading-a-proxy-then-assessing-management-and-directors/

This case study teaches us about reading a proxy, management compensation, board governance, and the struggles of activism.

Mr. David Winters of wintergreen_fund_annual_report_2015_1231 has struggled since inception. From inception on 10/17/2005, Wintergreen has returned 68.73% vs. 113.22% for the S&P 500.   Another fund started in 12/30/2011 returned 15.95% vs. 77% for the S%P 500.   Nevertheless, he has done a service for the investment community by pointing out egregious compensation plans in Wintergreen-TheTerrible10-2-web.  Then note the passiveness of the big index funds in terms of protecting their own shareholders, 20150430-Wintergreen-Advisers-BigIndex.

Mr. Winters began his battle with Coke in 2014. KO_VL Jan 2015. Coke has a fine franchise with high returns on capital, but its cost structure (including management’s compensation) may be far too high considering the competitive pressures that incombents are facing.   Coke has had to make pricey acquisitions to diversify out of brown sugary fizz drinks. Also, all incumbents are facing new pressures like DollarShaveClub.com breaching of Gillette’s (P&G) moat–see below

Dollar Shave Club Hurting Gillette


Analysis of Dollar Shave Adshttps://www.youtube.com/watch?v=cW8S-QBKcq4

As a review: Mr. Winter’s on Wealth Track: https://youtu.be/x6I1B3MaTms

Ok, back to Coke’s Proxy and Wintergreen’s battle to have Coke’s Board rescind the 2014 incentive compensation plan.   See the progression of the battle along with the slide presentations: Wintergreen Faults Coca Cola Management (KEY DOCUMENT TO READ!)

Then view Wintergreen’s presentations along with the articles in the link above:

What do you make of Mr. Winter’s struggle?  How can you explain Mr. Buffett’s actions? I was DISAPPOINTED but not surprised.  What did you learn that would be of help to your investing–the key to anything you spend time on?   Note Mr. Winter’s designation of corporate buybacks as another shareholder expense.   I believe shareholder buybacks are a use of corporate resources (a shrinking of the equity capital) that may either be a waste or a good use of resources depending upon whether the purchase price of the shares is below intrinsic value. Mr. Winters stresses that buybacks simply use corporate funds to mop up shareholder dilution. Regardless, Mr. Winter points out the huge shifting of shareholder property to a management that hasn’t performed exceptionally well.  Coke’s Board had granted exceptional awards for middling performance–now that is a travesty.

When I think of Coke, a great franchise that is not currently super cheap, I think of other “stable” franchise stocks like Campbell Soup or Kellogg’s.  The market has bid these up so your future returns will be low.  Do not misunderstand me, these companies are massive, slow-growth franchises, but if you pay too much, then you may have lower future returns for many years.

CMP Soup

CMP Soup



Lie with statistics http://tsi-blog.com/2016/07/you-can-make-statistics-say-whatever-you-want/


MAJOR ANALYST EXAM: Reading a Proxy then Assessing Management and Directors


KO ten

You always read the proxies and the notes to the financials. Today you read Coke 2014 Proxy.   

What is your assessment of management and the Board of Directors? What do you notice? Please justify your reply.

If you are struggling, then here is a hint:

You react: https://youtu.be/_YQR36fQ_Xc?t=43s  Why?

Another hint: KO_VL Jan 2015 for context.

Take a few days if necessary.   This is a critical case study that should be taught at every business school!

Lesson: READ WITH A PURPOSE.   Why do you read a proxy?  Unless it is a merger proxy, you focus on who the management and Board of Directors are and how they are compensated.   Go to the heart of the matter, don’t read all 100 pages.

Update: Between Euphoria and Despair.

If you invest in cyclical companies, then you should listen to http://ir.scorpiobulkers.com/Events and SALT-Earnings-Presentation-Q2-2016-Supplemental-Information and SALT 2Q 2016 Q Report

Uncivil Cola Wars: Coke and Pepsi Confront the Prisoner’s Dilemma–Case Studies

 He who lives in harmony with himself lives in harmony with the universe.–Marcus Aurelius

Competition Demystified Chapter 9: Uncivil Cola Wars: Coke and Pepsi Confront the Prisoner’s Dilemma

Let’s keep moving on…..

Study Questions

  1. What are the sources of competitive advantages in the soda industry? Can you show this by financial metrics?
  2.  During the “statesmen” era of Pepsi and Coke, what actions did each of the companies take? Why did  they help raise profitability?

Cases to study:

Coke vs Pepsi A Case Study.pdf – 191.55 KB
Coke vs Pepsi a Hundred Years War.pdf – 454.92 KB
Expires: Files will be available for download until June 06, 2012 13:42 PDT

Link: http://www.yousendit.com/download/M3BtNU1FdGpuSlRMbjhUQw

Coke vs Pepsi and the Soft Drink Industry.pdf

Coke vs Pepsi in the 1990s.pdfFiles will be available until June 06, 2012
Link for two cases here:

 Fortune Articles

Kicking Pepsi’s Can http://money.cnn.com/magazines/fortune/fortune_archive/1996/10/28/203906/index.htm

Crunch Time for Coke http://money.cnn.com/magazines/fortune/fortune_archive/1999/07/19/263104/index.htm

You have about 100 pages of reading including pages 181 to 199 in Competition Demystified. This case is important for learning about an industry with an oligopoly structure.

My apology to you for piling on so much work-Video: http://www.youtube.com/watch?v=_mI7ldxcio0&feature=related

Answers will be posted by next weekend. Good luck.