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Buffett Steals Coke’s Show Telling CEO to Study Failure

April 25, 2013

Buffett Steals Coke’s Show as He Tells CEO Kent to Study Failure

Coca-Cola Co.'s Chief Executive Officer Muhtar Kent, left, conducts an on-stage question-and-answer session with billionaire investor Warren Buffett during Coca-Cola's annual meeting in Atlanta on April 24, 2013. Photographer: Michael Pugh/Coca-Cola Co. via Bloomberg

Warren Buffett, who controls the largest stake in Coca-Cola Co. (KO), knows how to steal a show.

The billionaire investor showed up at the soda maker’s annual meeting yesterday to help sell the company’s message to shareholders in an on-stage interview with Chief Executive Officer Muhtar Kent. The surprise appearance drew a standing ovation as Buffett advised Kent to stay ahead of competitors by reviewing what made other businesses falter.

“I like to study failure,” Buffett, 82, said at the meeting held in the Cobb Galleria Center in Atlanta. “We want to see what has caused businesses to go bad, and the biggest thing that kills them is complacency. You want a restlessness, a feeling that somebody’s always after you, but you’re going to stay ahead.”

Berkshire Hathaway Inc. (BRK/A), which Buffett has led for more than four decades, owns 400 million Coca-Cola shares after a share split last year, with a value of almost $17 billion. Berkshire, which owns See’s Candies and an equity stake in American Express Co (AXP)., favors companies that have loyal customers and can withstand competition, Buffett said.

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“I’m the kind of guy that likes to bet on sure things,” Buffett told Kent. “If you take care of a great brand, it’s forever. Those are the kind of businesses I like.”

Only Mistake

Buffett reminisced about how as a 7-year-old boy in Omaha, Nebraska, where Berkshire is based, he would buy and sell bottles of Coke. He joked that the only mistake he made was not putting the nickel he made on each six-pack into Coca-Cola’s stock. He would eventually make up for lost time.

Buffett, who once served on Coke’s board and whose son Howard Buffett is currently a director, spent $1.3 billion on Berkshire’s stake, which was accumulated through the end of 1994. The stake was then valued at about $5.15 billion, Buffett said in a letter to shareholders published in 1995. At yesterday’s meeting, Buffett said he wouldn’t think of selling a share.

Kent asked Buffett about operating a multinational business amid wealth transfers in the global economy and the “volatile environment” that “leaves a lot of uncertainty.”

“You basically have to be accepted in countries around the world and bring them something that makes their lives better,” Buffett said. “If you can do it at a popular price, you can go to the masses of the world and say you’re going to live better because I’m going to be here -- and then behave that way -- you’ve got a winning formula.”

Asia Investments

Where is Your Fund Manager From?

Buffett has been busy internationally himself, looking for investments in Asia in recent years. He visited South Korea, Japan and India in 2011, and China in 2010.

International Dairy Queen Inc., a Berkshire subsidiary known for its ice-cream desserts, opened in Trinidad and Tobago in December. The unit started its 500th store in China last year and has more than 270 outlets in Thailand.

Lubrizol Corp., the chemical maker Berkshire acquired in 2011, is building a manufacturing plant in China while Berkshire units related to aircraft including NetJets Inc. and FlightSafety International Inc. also have bolstered their presence in Asia.

Kent, who is also Coca-Cola’s chairman, pushed last year for the Atlanta-based company’s 11th stock split with an appeal for greater market liquidity. The decision diverged from Buffett’s tactic at Berkshire, where he has resisted splitting the company’s Class A shares. The stock closed yesterday little changed at $159,950.

Enrich Brokers

Splits, Buffett said in a 1984 letter, may encourage short- term investment strategies that enrich brokers at the expense of the business. Howard, his son, said last year when Coca-Cola’s split was proposed that “every situation is different.”

Coca-Cola declined 1.3 percent to $42.15 at the close in New York yesterday. The shares have risen 16 percent this year, compared with an 11 percent gain in the Standard & Poor’s 500 Index.

Buffett will host shareholders at Berkshire’s annual meeting next week in Omaha. The gatherings, which draw tens of thousands of attendees, are a forum for the billionaire to praise deputies for their performance and promote Berkshire as the ideal buyer for managers seeking to sell their companies. He said yesterday that he wants a culture that promotes innovation and customer service.

“That belief that tomorrow is more exciting than today, you just have to have it permeate the organization,” he said. “The world does not belong to the pessimist. Believe me.”

To contact the reporters on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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