Singapore Markets closed

Coke Stock Split May Irk Warren Buffett

Don Dion

NEW YORK (TheStreet) -- For decades, Coca-Cola KO and Berkshire Hathaway's BRK.A Warren Buffett have had a successful relationship.
The mood may sour in the near term, however, as the soft-drink giant seeks approval for a 2-for-1 share split, a contentious topic for the famed billionaire.

Warren Buffett

Although Buffett has offered harsh words for companies that have considered stock splits and new share issuance, the Oracle of Omaha in recent years has encouraged a split for the Class B shares of Berkshire Hathaway BRK.B .
A report from Bloomberg notes that Coca-Cola's chairman is pushing for what will be the company's 11th share split. The move is a bid to attract new investors and boost liquidity.
JPMorgan: The Apple of the Banking Sector >>
Although the company may be successful in its efforts, the Oracle of Omaha has warned in the past that these types of moves are ultimately detrimental to current shareholders. By flooding the market with excessive new supply, current stakeholders will see their power diluted. In addition, a share split may attract short-term-minded individuals who are not truly interested in the company's long-term prosperity.
Buffett has famously lashed out against other companies in which he held stakes when they have suggested the idea of boosting the availability of their stock.
In 2010, food giant Kraft KFT announced its intentions to purchase Cadbury, and the Nebraska native was quick to express his displeasure.
Buffett railed against the $19.5 billion plan. Among his reasons was Kraft's proposal to issue as many as 370 million shares to help pay for the bid.
Life Without Apple Is Still Peachy for Some Fund Managers >>
The investor ended up turning his words into action. In the middle of that year, the public learned that Buffett had slashed his exposure to Kraft, paring back his position by nearly 25%.
Interestingly, 2010 was also the year that Buffett pushed for and received shareholder approval to initiate a 50-for-1 share split on the Class B shares of Berkshire. This move was done in order to help Buffett's empire fund its landmark bid for Burlington Northern Santa Fe Railroad. Buffett has called this $34 billion dollar acquisition -- the largest in Berkshire's history -- an "all-in" wager on the U.S. economy that will benefit shareholders for years to come.
With 200 million shares, Coca-Cola is by far Warren Buffett's largest stock holding. As of the end of 2011, the company represented more than one-fifth of the iconic portfolio. Living up to his title as a long-term investor, Buffett has claimed that he has never sold a share of Coke over the years.
The recent discussion of a Coca-Cola share split may irk Buffett from a philosophical standpoint, but I do not believe that it will inspire him to take any dramatic action towards his portfolio.
10 Top Warren Buffett Dividend Stocks >>
In fact, Buffett may actually end up supporting the move in the end. According to Bloomberg, Buffett's son, Howard Buffett, expressed his own approval for the plan and, as a member of the Coca-Cola board of directors, voted for it.
This is not the first time that we have seen Buffett shy away from his rule book nor will it be the last. Critics may express their disapproval and pan his decisions at times, but when following the investor's actions it is essential to keep in mind that his No. 1 rule is "don't lose money."
At the time of publication, Dion held no shares of stocks mentioned