How Coca-Cola's Stock Split May Upset Warren Buffett
On Tuesday, shareholders of Coca-Cola (NYSE: KO) approved a two-for-one stock split that will increase the number of shares to 11.2 billion. This is Coca-Cola's first stock split in 16 years and the 11th total in the company's 92-year history.
In a company release, Coca-Cola stated that, “[t]he record date for the stock split is expected to be July 27, 2012, with new shares expected to be distributed on or about Aug. 10, 2012. Each shareowner of record on the close of business on the record date will receive one additional share of common stock for each share held.”
One investor that may be irritated with the two-for-one stock split is Warren Buffett. Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has 200 million shares in Coca-Cola that are worth over $15 billion. Coca-Cola is Berkshire Hathaway's largest holding, and it has an 8.84% stake in the company according to CNBC.
Buffett has always had confidence in Coca-Cola, telling CNBC, "I've had a relationship with Coke for over 70 years. . .Today we own 200 million shares. We've never sold a share of Coca-Cola."
Could this change after the stock split? Buffett has always been against stock splits, stating that they are bad for the investors because the new shares dilute the current shareholders' power. He also believes that stock splits may attract investors who are only interested in the short term. Buffett has always liked shareholders in Berkshire Hathaway who act as owners and who plan to stay invested in the company for a long time.
In a letter to the shareholders in 1983, Warren Buffett wrote, “Could we really improve our shareholder group by trading some of present clear-thinking members for impressionable new ones who, preferring paper to value, feel wealthier with nine $10 bills than with one $100 bill?"
Buffett was on the board of Coca-Cola for three different stock-splits. Buffet also split the B share of Berkshire Hathaway 50-for-one in 2010. Buffett stated that the stock split encouraged Burlington North investors to convert more of their holdings to Berkshire Hathaway shares. According to a Bloomberg article, when commenting on his father's opinion on stock splits, Howard Buffett stated that his father has, “one opinion about how Berkshire should handle a stock split and another about how Coke would handle it.”
When writing about Coca-Cola in his 2010 letter to the shareholders, Buffett wrote, “In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I would expect that $376 million to double.”
Shares of Coca-Cola were trading at $78.12 at the time of posting, up 0.18 percent from Monday's market close.
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