What often kept The Coca-Cola Co (NYSE:KO) investor David Winters of Wintergreen Advisors up at night was that a private equity company, one affiliated with Coca-Cola’s largest shareholder, Warren Buffett, would take Coke private, change management and engage in cost cutting to improve company profitability. Cutting costs was something Winters had advocated for, but he wanted current Coca-Cola management to do the job so that existing Coke shareholders could benefit.
Winter’s fears could be materializing.
3-G Capital’s prime target Coca-Cola
Well-known Brazilian private equity firm, 3-G Capital, who has affiliated with Buffett in the past on takeover deals, is in the process of creating a new fund to target companies in the food and beverage industry, according to a report in Veja magazine, Brazil’s leading news magazine. And their primary target, according to the report: The Coca-Cola Co (NYSE:KO).
Veja’s business columnist, Geraldo Samor, citing sources, is reporting that 3-G Capital’s Brazilian billionaires, Jorge Paulo Leman, Marcus Herrmann Telles and Carlos Alberto Sicupira and their 3-G Capital team, have approached leading investment banks and have already received commitments of $2.5 billion for the fund, which has a goal to reach $4 billion to $5 billion.
In the past, 3-G Capital has had a taste for large U.S.-based food companies, including Anheuser Busch Inbev SA (ADR) (NYSE:BUD), as well as deals where they worked alongside Warren Buffett. This included the 2013 private equity purchase of H.J. Heinz Company (NYSE:HNZ), which Winters has cited as a potential model for a Coke acquisition. Buffett and 3G-Capital were again both involved as participants in the 2014 takeover of Burger King Worldwide Inc (NYSE:BKW), a tax inversion deal that moved the company to Canada.
When 3-G Capital acquires a company, it is best known for applying a system of meritocracy with stringent cost cutting measures to transform sometimes bloated corporations into profitability, according to a Forbes report from Anderson Antunes.
Buffett and 3-G Capital to take Coca-Cola private
There has been rampant speculation from Winters and others that Buffett and 3-G might take The Coca-Cola Co (NYSE:KO) private. If this happens the concern is that the private equity group, not existing Coke shareholders, would reap the majority of the financial windfall, a topic at the top of Winters mind. In his last communiqué, Winters called for the Coke board to be replaced if a large compensation plan for Coke management was not dramatically reduced and had repeatedly warned that about a private equity takeover of the company. Nomura Holdings had speculated as early as this past October that 3-G Capital might be interested in Coke, as reported in ValueWalk.
David Winters today was taking a decidedly more subdued approach, saying in an email to ValueWalk: “If Coke is getting approached by 3G or others, we strongly urge the Board to take all steps necessary to maximize shareholder value and fulfill their fiduciary obligations.”
The Veja article indicates that a total takeover of 3-G Capital is one option, but another might be for the firm to take a 10 percent stake in the company and keeping it public. Buffett, for his part, has in the past denied that plans to take Coke private exist.
This article was updated 11/20/2014 to add comments from David Winters