Latest Company in Activist Crosshairs: Coca-Cola

David Winters’ hedge fund has launched an attack on the soda company, and apparently has the interest of at least one major institutional shareholder.

Hedge fund Wintergreen Advisors has built up its holdings of Coca-Cola stock, and taken aim at the corporation’s governance and operations.

In a newly launched website—fixbigsoda.com—Wintergreen outlined a multi-point plan for improving shareholder returns. The proposal included “a laser-like focus on costs,” “no more attempts to buy growth,” separating the roles of chairman and CEO, improved disclosure, “a strong and independent board or directors,” and replacing the 2014 executive equity compensation plan.

The beverage giant announced its second quarter earnings July 22. Global sales volume grew 2% year-on-year for the first half of 2014, yet net revenue dropped 3% for the same period.

Wintergreen’s CEO David Winters jumped on these figures as further evidence for reforming aspects of the company.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

“Coca-Cola’s lackluster second quarter earnings report underscores the need for urgent action,” Winters said. “If the current board of directors and management team are unwilling or unable to get Coca-Cola back on the path of profitable and organic growth that accrues to all shareholders, they should be replaced. Coca-Cola and its shareholders deserve nothing less.”

New Jersey-based Wintergreen contacted Coca-Cola’s largest institutional shareholders earlier this month to voice its concerns, according to the hedge fund. Of these ten mega-investors, Winters told ValueWalk that one has expressed interest in the plan, in addition to many smaller shareholders.

Coca-Cola’s largest institutional shareholders include Berkshire Hathaway, Vanguard, State Street, FMR, BlackRock, Northern Trust, Bank of New York Mellon, Yacktman Asset Management, and Capital Research Group.

Warren Buffett, whose firm Berkshire Hathaway owns roughly 400 million Coca-Cola shares, told has told CNBC that he privately disagreed with the company’s executive compensation plan.

“I don't really want to embarrass the Coca-Cola company,” Buffett said on May 5. “I was certainly looking to have them reexamine what they were doing.”

However much he agreed with Winters about excessive pay packets, in a CNBC interview Buffett dismissed the activist investor’s notion that Coca-Cola might be taken private.

“Absolutely no chance of that,” Buffett said.

The Philips Pension Fund has secured a second buy-in deal in 12 months, insuring £300 million with Prudential.

It follows the fund’s £484 million buy-in completed in August last year, insured by Rothesay Life.

The latest buy-in covers the liabilities of 1,800 pensioners and was aimed at “managing investment, longevity and other risks”, advisers LCP said in a statement. LCP have advised the Philips Pension Fund on both deals.

“[Philips] is one of the ‘go to’ pension schemes for an insurer looking to transact when they have attractive pricing opportunities available.”—Myles Pink, principal at LCP.Prudential’s Executive Director of UK & Offshore Tulsi Naidu said the insurer was actively seeking pension funds “opting for large annuity buy-ins as their de-risking route of choice”.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Myles Pink, principal at LCP, said the fact that the Philips pension was able to act quickly to secure the transaction meant “it is one of the ‘go to’ pension schemes for an insurer looking to transact when they have attractive pricing opportunities available”.

The transaction is the latest in a series of de-risking deals struck this year, by far the largest of which was BT’s £16 billion longevity swap transaction with Prudential Insurance Company of America. Total’s UK pension scheme secured the second-largest buy-in recorded in the UK, insuring £1.6 billion with Pension Insurance Corporation last month. This year has also seen the UK’s largest deal, with Legal & General and Prudential sharing the £3.6 billion buyout of chemical company AkzoNobel’s ICI Pension Fund.

Emma Watkins, partner at LCP, told Chief Investment Officer that schemes engaging in multiple buy-in deals sometimes choose to re-tender for different tranches to take advantage of cost benefits.

“Clearly where the new liabilities or membership tranche is larger there may be a genuine cost benefit to running a competitive tender process,” she said.

“In this case the trustees and adviser would run a full process and it is quite possible that an insurer other than the incumbent will provide a more competitive price—perhaps they can offer more competitive terms for the new demographic of this population, or have just secured a risk-adjusted high yielding asset. However, it is likely that there will be a cost associated with negotiating new commercial terms with a new provider, which will likely set the margin needed for the ‘winning’ insurer.”

Watkins added that the trustees may also have sought diversification of covenant risk, or to ensure competition for future de-risking deals.