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Berkshire Hathaway
In Reply To: KO

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By Tode
January 27, 2003

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BTW, Fortune ran an excellent article in Dec. 2001 on Steve Heyer. He was recently named President and COO and appears to be the guy who will some day replace Daft as Chairman and CEO. I look forward to that day (some say Heyer already is the de facto CEO and Daft is the statesman who works on "relationships"). The article highlights several dubious things that have happened under Daft's watch, and gives us reason to hope that they would not have happened had Heyer been in charge. For example:

1. When Heyer was hired in 2001, Coke was about to enter into a joint venture with P&G that would have given P&G a free ride on KO's distribution system to sell its declining brands like Pringles and Sunny Delight. It would have been a bad deal for KO and Heyer scotched it.

2. Daft literally was out posing for pictures with Quaker Oats' CEO to promote his acquisition of that company, before he bothered to discuss the deal with KO's board. He then showed up at the board meeting without having reviewed the due diligence beforehand. WEB did the math "on the spot" and didn't like the price. The deal was called off. I don't think Heyer would have made those gaffes.

3. Daft was at the reins when KO made some disastrous advertising campaign decisions. Remember those cynical (thankfully short-lived) commercials a couple years ago? I can't imagine what Daft and others in top management were thinking when they decided to make Coke "edgy" and cynical. The article points out how Heyer "wrote new marketing instructions for Coke, distilling hundreds of pages to a crisp half-page. Sample: Coke is about optimism and authenticity; it is never cynical or funky or moody." Amazing that it took an "outsider" like Heyer to remind the top brass in Atlanta of that obvious, simple truth.

4. The article also notes that Daft "isn't bothered that Coke spent $150 million for its exclusive Harry Potter tie-in and was required by Warner Brothers to downplay its drink in its own ads. 'You don't need to go out and beat your chest,' Daft says. (Heyer, for one, disagrees; he gripes that you can hardly tell that the ads, which offer only a three-second glimpse of the Coca-Cola logo, are Coke spots.)" I am 100% with Heyer on that one.

Here's a link to the article, [and] another short piece the same author did last month after Heyer was named President and COO.

I think Daft is a nice gentleman--and Lord knows Coke had some relationships that needed mending when he took over after Ivestor's era of financial engineering and leveraging the distributors to the hilt to make overpriced acquisitions. But I agree with the author's statement in the Dec. 2001 article: "But at this critical juncture, Coca-Cola needs more than diplomacy. It needs leadership and, just as important, great execution."

Heyer looks to me like he has the drive, the marketing sense and the leadership qualities to get KO back on track. And I like the fact that Keough, WEB's old neighbor and himself an owner of 5 million KO shares, is counseling Heyer to "learn the business" and "keep your head down", and telling him (no doubt with WEB's blessing) that if he handles this right, he will have a "great opportunity."

With KO selling at a reasonable multiple again and Heyer on his way to the throne, I am more optimistic than I have been in a long time about BRK's holdings of KO. The same is true of Gillette with its new CEO, but that is a subject for another day. With these two Inevitables (I think it's OK to use that term again) on the mend and selling at prices that afford, IMO, much more upside than downside, and with BRK's insurance business running at full throttle, I think there is good reason to be optimistic about BRK's prospects.


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