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Coca-Cola’s Planned Stock Split May Not Go Down Well With Buffett (KO)

Coca-Cola Co. (NYSE: KO) is seeking approval for its first stock split in 16 years, according to a report by Bloomberg this week. The beverage maker is seeking a 2-for-1 split. Although shares reacted positively to the news, the planned stock split may not go down well with one shareholder, Warren Buffett.

The stock split is being pushed by Coke’s Chairman Muhtar Kent. If approved, it would be Coke’s 11th stock split. Generally, a company splits its stock when it believes that the stock price is too expensive or the stock is trading too much above similar companies’ stock. Coke is pushing for a stock split in a bid to attract new investors and boost the stock’s liquidity.

If shareholders approve the stock split, Coke’s number of shares would increase to 11.2 billion from 5.6 billion. The stock split is subject to approval by shareholders on July 10.

Although Coke shares reacted positively to the stock split news, one of the company’s biggest shareholders may not like the idea.

Warren Buffett, who controls nearly $15 billion worth of stake in Coca-Cola and has enjoyed a successful relationship with the Atlanta-based company for decades, has in the past offered harsh words for companies that have planned stock splits. Although Buffett’s own company, Berkshire Hathaway (NYSE: BRK.A), has encouraged splitting its Class B shares, the Oracle of Omaha has resisted splitting the company’s Class A shares.

In the past, Buffett has warned that stock splits are detrimental to existing shareholders as it may dilute their powers. According to Bloomberg, in a 1984 letter, Buffett had said that splits may encourage short-term investment strategies that may enrich brokers at the expense of the business. Buffett has so far not commented on Coke’s latest stock split plan.

In the past, Buffett has lashed out against companies in which he has stakes when they announced plans to split their stock. Only time will tell, if the world’s greatest investor reacts in the same way if Coke’s stock split is approved.

 


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