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Read the review of KO. Surprised there is no mention of financial interactions between KO and CCE.

Can you really review KO's future without considering this?

Way before quality problems in Europe hit, way before Cadbury appeared, there are financial interactions between the "head" and the "body" of the Coke business model to consider. Are these really (2) separate companies, or did Ivestor palm off non performing assets to the public? Can these assets remain "unlinked" or are we beginning to see serious disruptures in the relationship?

Will CCE force KO to lower product costs? Will governments demand more of a hands off relationship between these (2) generating KO price power erosion?

It would be good to fully understand the past years of financial and operational relationships between these (2) companies. Seems KO has reaped benefits from the early years but is now funding operational problems with accounting sleight of hand.

Anyone have the expertise to evaluate this?
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...there are financial interactions between the "head" and the "body" of the Coke business model to consider. Are these really (2) separate companies, or did Ivestor palm off non performing assets to the public? Can these assets remain "unlinked" or are we beginning to see serious disruptures in the relationship?

Will CCE force KO to lower product costs? Will governments demand more of a hands off relationship between these (2) generating KO price power erosion?



These are all really great questions. It's interesting that PEP has recently done exacly the same thing with it's bottling Co's - presumably because they viewed KO's business model as better and could not find a better way to compete with it. If KO's bottlers start to puch back hard on KO, it won't be long before the same happens to PEP.

- mclaus
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McLaus: Thanks for the note.

I just thought that a multi-part review of KO was not just fluff, but flawed. How can you do a valuation of KO without discussing this relationship and its history? KO spun out low performing assets to the public, and kept the gravy AND control.

There was an interesting article in the NY Times this year that reviewed this. I believe this article stated the early years KO received significant $$ from CCE, but now it is the other way around. Also, when KO was sending $$ to CCE, their accounting did not treat this as "operational" costs, but as some sort of "investment" or one time payment (funny how the direction of flow changes the type of payment?) As for the Motley Fool, they should review this and rewrite the piece on KO. Maybe the conclusions will be the same, but I do not think so.

Everyone is viewing KO as damaged goods because of the Europe scare and the Cadbury and Orangina purchase problems. But some thought needs to go to operational issues, which have at the heart of them CCE.

As for PEP, I don't blame them for copying Ivestor's financial structure. He's a smart man - as anyone who can tap into other people's money should be seen as. It worked in the early years. But most strategies work early. It's intermediate and late years that most investors must be concerned with.

Personally, if Buffet was not an investor here, I do not think the market would be so kind to KO. As for PEP, they may reap the same ramp-up as KO did just after the bottler spin out. Nothing like OPM for a short term boost.
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