Coca-Cola Shareholder Says CEO Kent Should Be Replaced

(RTTNews) - Wintergreen Advisers, a minority shareholder in Coca-Cola Co. (KO), said Monday that the beverages giant's chief executive officer Muhtar Kent is "incapable of leading Coke's turnaround and should be replaced".

Issuing a report on Coca-Cola, the shareholder called for forceful action to revitalize the Atlanta, Georgia-based company, noting that its shares were deeply discounted due to poor management and governance.

David Winters, CEO of Wintergreen Advisers, said, "Coca-Cola has serious problems but we believe they can be fixed. With the right management and a commitment to serving shareholders, we think Coca-Cola can thrive again."

Wintergreen Advisers said that despite criticism from it as well as other Coca-Cola shareholders, the company's management and board of directors seem to be doing little to address these problems.

The investment firm said, "Instead of meaningful change, Coke seems to us to be using diversions and obfuscation -what we call fizzy math -in order to continue practices that have failed its shareholders time and again."

According to Wintergreen Advisers, the strategic investments made by Coca-Cola CEO Kent have "destroyed shareholder value and his blunders on failed acquisitions alone have cost shareholders $16.3 billion".

Wintergreen Advisers said that the acquisition of Coca-Cola Enterprises' North American business for $12.2 billion four years ago appeared to be a "massively expensive blunder". In addition, Coca-Cola's purchase of Glaceau, the maker of Vitaminwater, for $4.1 billion appeared to be an "abject failure".

The investment firm noted that pay for Coke's top management has been excessive in light of the company's performance. Annual equity grants to top management have risen steadily over the past four years while Coke's profit growth has stalled, the firm said.

Further, Wintergreen Advisers said that instead of putting a brake on pay, Coca-Cola's equity stewardship guidelines could continue to reward Coke's top managers unjustly. The guidelines' emphasis on cash bonuses could cost shareholders as much as $10.20 of per share value, according to the firm.

Wintergreen Advisers noted that Coca-Cola has been routinely outspending its cash flow in recent years and funding the gap with debt. But additional spending on executive bonuses and severance charges will make this problem even worse.

However, the investment firm said that while the recent election of two new directors to the Coca-Cola Board is a welcome sign of progress, more needs to be done.

According to Wintergreen Advisers, getting rid of bad compensation plans, bringing in new and more capable management, control of expenses and overhead, and replacing the Coke board with a shareholder-focused board will resolve the company's problems.

Earlier on Monday, Coca-Cola said it expects full-year 2014 comparable currency neutral earnings per share growth of 4 percent to 5 percent, and a currency headwind of 7 percent. In October, the company said it expected to be below its long-term earnings per share growth target for 2014.

The company also said it expects fourth-quarter comparable currency neutral earnings per share growth to be even to slightly positive. The impact of currency in the fourth quarter is expected to be a 6 to 7 point headwind on operating income and a 9 point headwind on earnings per share.

KO closed Monday's trading at $40.57, down $0.34 or 0.83 percent on a volume of 23.32 million shares. In after-hours, the stock further declined $0.06 or 0.15 percent to $40.51.