Thursday, April 24, 2014

A few comments on Warren Buffett and Coke

I've seen a number of people, many who consider Buffett a hero and are not normally so quick to jump to conclusions when he says something, express disappointment over some of the comments Mr. Buffett has made about the Coca-Cola compensation plan, especially comments such as: "It's kind of un-American to vote no at a Coke meeting."

I'm going to let it set in a little longer, but I must admit, I'm a bit surprised. It's kind of hard to reconcile talking about excessive executive compensation for so long and admitting you thought Coke's plan was excessive, and then not vote against it. Even though he abstained from voting and came out and said it was excessive, it's still an interesting thing to do. But maybe he's also trying to be political in order to get Coke to alter the plan a bit, as it seems they might have a little discretion on the timing of the option awards. If the person who loves you most tells the world how much he loves you, but also says he's not a big fan of some of your actions, maybe it's a more effective way to ignite change in those actions. I don't know.

Another big issue revolves around the CNBC appearance, in this exchange with Becky Quick:
BECKY: Your math, does it match up with David Winters who is— is the activist who's been very vocal about this. By his math— he thinks it would be something like— a dilution of 16 percent to— existing shareholders— that are there. And—and Muhtar Kent has up from the company and he thinks it's more like 1 percent of—

BUFFETT: Well, it— it— it's closer to the 1 than it is to the 16— in terms of dilution because they would repurchase— the— they would use the proceeds they received in the options to repurchase shares. So— so— they said the breakdown between giving performance shares— in terms of what they call option equivalent, it would be 40 percent down and 60 percent options. If they repurchase the shares, it would not be— it would not be as low as 1 percent. It— it would be far from the— from the higher numbers.
In that response, it sounds like he's mentioning repurchases and option issuance as part of the same equation, whereas in his 1999 letter to shareholders, he said:
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).