GO
Loading...

Coke Stock Split May Irk Warren Buffett

Don Dion|Portfolio Manager
Friday, 27 Apr 2012 | 8:26 AM ET

For decades, Coca-Cola and Berkshire Hathaway’s Warren Buffett have had a successful relationship.

The mood may sour in the near term, however, as the soft-drink giant seeks approval for a 2-for-1 stock split, a contentious topic for the famed billionaire.

Although Buffett has offered harsh words for companies that have considered stock splits and new share issuance, the Oracle of Omaha in recent years has encouraged a split for the Class B shares of Berkshire Hathaway .

A report from Bloomberg notes that Coca-Cola’s chairman is pushing for what will be the company’s 11th share split. The move is a bid to attract new investors and boost liquidity.

Although the company may be successful in its efforts, the Oracle of Omaha has warned in the past that these types of moves are ultimately detrimental to current shareholders. By flooding the market with excessive new supply, current stakeholders will see their power diluted. In addition, a share split may attract short-term-minded individuals who are not truly interested in the company’s long-term prosperity.

Buffett has famously lashed out against other companies in which he held stakes when they have suggested the idea of boosting the availability of their stock.

In 2010, food giant Kraft Foods announced its intentions to purchase Cadbury, and the Nebraska native was quick to express his displeasure. Buffett railed against the $19.5 billion plan. Among his reasons was Kraft’s proposal to issue as many as 370 million shares to help pay for the bid.

The investor ended up turning his words into action. In the middle of that year, the public learned that Buffett had slashed his exposure to Kraft, paring back his position by nearly 25 percent.

Interestingly, 2010 was also the year that Buffett pushed for and received shareholder approval to initiate a 50-for-1 share split on the Class B shares of Berkshire. This move was done in order to help Buffett’s empire fund its landmark bid for Burlington Northern Santa Fe Railroad. Buffett has called this $34 billion dollar acquisition — the largest in Berkshire’s history — an “all-in” wager on the U.S. economy that will benefit shareholders for years to come.

Additional News: Coca-Cola Earnings: Flat or Fizzing?

Additional Views: Does PepsiCo or Coca-Cola Carry More Risk?

_____________________________

CNBC Data Pages:

______________________________
Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks.

Disclaimer

  Price   Change %Change
BRK.A
---
MDLZ
---
KO
---

Featured