Monday, March 31, 2014

Coca-Cola responds to David Winters

"Of course, both option grants and repurchases may make sense — but if that’s the case, it’s not because the two activities are logically related. Rationally, a company’s decision to repurchase shares or to issue them should stand on its own feet. Just because stock has been issued to satisfy options — or for any other reason — does not mean that stock should be repurchased at a price above intrinsic value. Correspondingly, a stock that sells well below intrinsic value should be repurchased whether or not stock has previously been issued (or may be because of outstanding options)." -Warren Buffett (1999 Letter to Shareholders)

Coca-Cola’s response to David Winters, WHAT LEMONADE STANDS CAN TEACH US ABOUT OWNERSHIP, is fairly ridiculous on a couple of levels, and its contradiction with what Warren Buffett has taught the public over the years about share repurchases and when they add or subtract from value (see THIS) I think makes it more likely that Mr. Buffett will respond in more detail than he maybe previously would have. If you aren’t familiar with Winters’ issues with Coke’s compensation plans, see THIS post.

The Rational Walk blog has a great post on Coke’s response, and why the rationale behind it is off track: