Activist Says Buffett Wants to Steal Coca-Cola in Deal of the Century

Mutual fund manager David Winters says Warren Buffett is conspiring to acquire Coca-Cola at a bargain price. Will Buffett pull off the largest LBO in history?

Jun 24, 2014 at 6:25PM

The activist investor who urged Warren Buffett to vote against Coca-Cola's (NYSE:KO) compensation plan is now speculating that Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) is conspiring to take the beverage giant private in a sweetheart deal. David Winters, CEO of Wintergreen Advisors LLC, which operates the Morningstar four-star-rated Wintergreen Fund (NASDAQMUTFUND:WGRNX), says Buffett's recent behavior suggests that he could team up with private equity firm 3G Capital to complete the deal. Is Winters crazy, or could Buffett shock the investing world with the largest leveraged buyout in history?

Ko Takeover

Winters says Buffett and 3G want to take over Coca-Cola. Image source: Coca-Cola.

Where there's smoke, there's fire
Winters gave an interview with Maria Bartiromo to explain a letter he sent to Coca-Cola's board earlier this week. He explained how odd it is that Buffett, a stickler for reining in excessive compensation, was slow to speak out against Coca-Cola's excessive compensation package. Even when he did express displeasure with the plan, Buffett made a point to express his approval of management.

Winters says Buffett's comments at Berkshire's annual meeting provide further evidence that something is happening behind the scenes. At the meeting, Buffett held up the Heinz leveraged buyout, or LBO, by Berkshire and 3G Capital as the new model, suggesting that Buffett would like to do similar deals in the future. Winters also held up Buffett's remark that Berkshire "hasn't bought Coke yet" as another clue.

Buffett's and Coca-Cola's actions create a lot of smoke, Winters argues, and says, "Where there's smoke, there's fire."

Ordinarily, shareholders of an acquisition target should rejoice, not write angry letters to the board. However, Berkshire's 9% stake in Coca-Cola, Buffett's close relationship with management, and the presence of Buffett's son, Howard, on Coca-Cola's board make Winters concerned that shareholders could get a raw deal. "Coke should be full and fair auctioned, [with] maximum and full disclosure for all bidders around the world," Winters argued, not pre-negotiated behind the scenes.

Largest LBO in history
As soon as the buyout speculation reached her, CNBC's Becky Quick dialed Buffett to see if there was any truth to it. "Absolutely no chance of that," Buffett replied after asking her to repeat what seemed like an outrageous idea.

Of course, if Buffett said he had "no comment," it would only fuel speculation that the rumor was true, making the acquisition more expensive. Was Buffett forced to deceive the public in order to keep the target in play, or is the Coca-Cola acquisition as unlikely as it seems?

Ko Too Big

Coca-Cola may be too big, even for Berkshire. Image source: Coca-Cola.

My bet is on the latter. Although Buffett is on the lookout for large companies to acquire, Coca-Cola may be too large. Berkshire's largest acquisition to date was its 2010 acquisition of Burlington Northern Santa Fe in a deal worth $44 billion including acquired debt. Coca-Cola's enterprise value is over $200 billion; even before a takeover premium, Coca-Cola would be Berkshire's largest acquisition by a factor of four.

Believers in the speculation might argue that the Heinz acquisition provides a blueprint that could make the Coca-Cola acquisition feasible. Berkshire and 3G used just $12.12 billion in cash to make an acquisition valued at $28 billion. If Berkshire and 3G pay a 15% premium to Coca-Cola's market capitalization, or $210 billion, plus assume $25 billion in net debt, the acquisition would be valued at $235 billion. Funding the deal with 40% cash would require $75 billion after subtracting Berkshire's existing 9.1% stake.

The biggest LBO of all time was valued at $55 billion. This means that Buffett and 3G would have to come up with more cash than the entire value of the largest LBO in history. Berkshire could conceivably come up with the cash, but it would have to dismantle its equity portfolio and insurance regulators may object.

What about other possibilities?
There are numerous other ways that Buffett could wrest control of Coca-Cola. Berkshire and 3G could make a tender offer for a large percentage of shares, Berkshire could gather a larger consortium of bidders that could take the company private, or Buffett could simply speak his mind and he'd be able to effect change at Coca-Cola.

Investors looking to make a quick buck should know that none of these scenarios is likely to ever happen. Buffett is not one to meddle in the affairs of his investments, whether wholly owned subsidiaries or publicly traded stocks. If he thought Coca-Cola's management couldn't deliver for shareholders, Buffett would not own the stock.

Foolish final thoughts
If Buffett was ever considering a buyout of Coca-Cola, I doubt he still is now. Not only would the acquisition be enormous, but it would tarnish Buffett's reputation as an honest and transparent businessman. David Winters' wild speculation keeps him in the news, possibly boosting investor interest in his mutual funds, but investors would be wise to ignore the speculation. There's no fire here, just a mutual fund manager blowing smoke.

Warren Buffett just bought nearly 9 million shares of this company
Buffett isn't buying Coca-Cola, he's buying a better company. Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Ted Cooper owns shares of Coca-Cola. The Motley Fool recommends Berkshire Hathaway and Coca-Cola. The Motley Fool owns shares of Berkshire Hathaway and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information