David Winters Duels With Coke Over Math, Readies For Vote

David Winters Duels With Coke Over Math, Readies For Vote
Image source: Wintergreen Funds

As the The Coca-Cola Company (NYSE:KO) investor battleground has been prepared for a showdown vote on April 23, the question remains is David Winter’s correct in his assertions?  Or does such a minority shareholder even have a right to hold the firm accountable for a compensation plan that Winters called “stunning”?

“If management is going to hijack the value of the company investors should be aware,” Winters said in an interview.  At issue are assertions made by Winters that Coke’s employee compensation program would gut shareholders of value while enriching the top 5% of the company.

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Did David Winters make a mistake in his formula on Coke?

After citing the company’s prospectus, which calculated the math on the issue, David Winters attacked the management bonus program as an “outrageous” wealth grab. Coke then took to disputing Winter’s math, as reported in ValueWalk.

Winters argues the equity compensation plan to would give $28 billion, or 16.6% of the company’s outstanding shares, to management if they meet their 2014 performance targets.  The plan is being put before shareholders at Coke’s April 23 annual meeting.

Coke basically alleged the formula used by Winters did not take into account two key formulaic variables.  One variable is stock options granted to employees and the related stock buybacks they generate were not calculated into the formula.  But more significant is Coke claims that Winters didn’t calculate the fact many employees won’t stick around to collect the incentive.  The program requires an employee to remain at the firm for ten years to claim the incentive.

In terms of the math, the people at Wintergreen respond that they used Coke’s numbers to draw conclusions.  “The compensation plan is going to have a serious impact on shareholder value, there is no dispute about that its clearly in the company’s proxy statement,” said Liz Cohernour, chief operating officer for Wintergreen.  “There is absolute validity in our calculations,” Dan Geary, the fund’s chief financial officer, said in an interview.  “People may not be pleased with the outcome, but the math is clear.”

Does David Winters have the right to question the board?

David Winters is a minority shareholder in Coke, owning just 2.89 million shares, a minute percentage of the nearly 4.4 billion shares outstanding, and some market observers wondered if Winters had the right to speak up.

In an exchange on CNBC  April 15, Jim Cramer joked he had more shares of Coke than David Winters, which led Andrew Ross Sorkin to question: “Do you think with activist investors we should care what their stake is or what their argument is?”

“I care about the (track) record,” Cramer said.  “I care about how much money they have, I care if they want to get on the board and have a right to get on the board,” Cramer said. “I don’t care if they are pop-offs who have no say and are insulting to people like Muhtar Kent who has been a great executive who has done a fabulous job. I respect Muhtar Kent and I think sometimes these guys who don’t have a lot of capital shoot their mouth off ought to respect some of these great CEOs.  They deserve our respect.”

“I’ve never seen anything like this,” David Winters said in an interview, referring to the Coke management compensation package.  “It is stunning.  It would be one thing if they were growing at 40%, but this is a mid single digit grower (and doesn’t warrant such an aggressive bonus package).”

The vote is this Wednesday.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com
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