SunTrust Banks, a large southeast U.S. regional bank, said it has begun to unload shares of Coca-Cola that it has held since 1919, as part of a restructuring expected to save $530 million a year.
The No. 7 U.S. bank, which keeps a copy of the original formula for Coca-Cola in a vault, said it recently sold 4.5 million, or 9%, of its 48.2 million Coke shares. It plans by year end to decide what to do with the rest. SunTrust and Coca-Cola are based in Atlanta.
Shareholders have periodically urged SunTrust to sell its Coke shares, which trade about one-fifth below where they did 10 years ago. SunTrust is Coke's largest institutional shareholder other than Warren Buffett's Berkshire Hathaway , according to Thomson ShareWatch.
"It's a startling development," said Richard Bove, an analyst at Punk Ziegel in Lutz, Florida. "It had been an article of faith at SunTrust not to touch its Coca-Cola stock. A decision to sell is the right one if it can redeploy proceeds in its business and strengthen its capital base."
The cost savings are expected by 2009, and are 33% above the $400 million SunTrust had projected in January. SunTrust said the savings will come from corporate real estate, supplier management, offshoring, outsourcing and other areas. It boosted its 2007 savings forecast to $181 million from $135 million.
Job Cuts, Merger Talk
SunTrust plans to cut jobs, but has not specified a number, spokesman Barry Koling said. The bank also plans to buy back $750 million to $1 billion of stock this year.
"This is a consolidating industry, and returns at SunTrust are not at the top like they should be, given its footprint in some of the country's best markets," said Jeff Davis, an analyst at FTN Midwest Research in Nashville, Tennessee.
SunTrust ended March with $186.4 billion of assets and 1,691 branches in several U.S. states. Its shares fell 97 cents to $86.89 in morning trading on the New York Stock Exchange.
The changes are being overseen by James Wells, who took over from L. Phillip Humann as chief executive in January.
Like many banks, SunTrust has struggled with heightened competition and a tough interest-rate environment, which has crimped margins. First-quarter profit fell 3% to $532 million as mortgage revenue plunged and loan losses increased.
SunTrust shares nonetheless hit a record high on May 11, amid analyst speculation the bank might be sold.
"When you straighten out your balance sheet and cut costs, the logical conclusion is you're shaping up for a sale," Bove said, adding: "I don't believe this company will be sold."
Koling declined to comment on sale speculation.
Took Coca-Cola Public
SunTrust acquired its stake in the world's largest soft drink maker when a predecessor took Coca-Cola public.
The number of shares has grown through dividend reinvestments and stock splits. SunTrust's Coke stake was worth $2.3 billion on March 31; its book value was just $110,000.
"I would think it's more important to SunTrust than to Coca-Cola," said Steven Dixon, a portfolio manager at Arnhold and S. Bleichroeder Advisers, which owns Coke shares.
Coca-Cola spokesman Dana Bolden declined to comment.