Warren Buffett made a mint buying shares of The Coca-Cola Company almost three decades ago, but he might not buy Coca-Cola Amatil Ltd (ASX: CCL) shares.
When I say he has made a mint, I mean it.
His company, Berkshire Hathaway, currently owns 9.33% of The Coca-Cola Company. In US dollar terms, that stake is worth around $US 17 billion (with a 'b').
But get this…
This year, he will receive almost half of what it cost him — in dividends alone. In dollar terms, he paid a little more $US1 billion for a stake in the company in 1988 — he stands to receive around $US 560 million in dividends in 2017.
Would Buffett buy Coca-Cola Amatil?
Coca-Cola Amatil is Australia's bottler and distributor of Coca-Cola products. It also distributes Coca-Cola — and other brands, like Mount Franklin, Monster and coffee — to four neighbouring countries.
The Buffett-Munger checklist
In a 2009 interview with the BBC, Buffett's investing partner Charlie Munger revealed the duo's simple investing checklist. Let's run Coca-Cola Amatil through their four-part filter.
1. They must be capable of understanding the business.
Coca-Cola Amatil distributes world renowned products owned by the Coca-Cola Company. Amatil is nearly 30% owned by its parent. As a shareholder in the parent company, I think Buffett would have no problem understanding Coca-Cola Amatil.
2. The business must have a durable competitive advantage.
Having been around for decades, Coca-Cola products are unique and sought after by customers. While there are fears many could switch to Pepsi, Coca-Cola products have an advantage in that they are the only Coca-Cola products.
While Coca-Cola Amatil does not own the brands, its exclusive right to distribute the beverages extends the competitive advantage to it.
3. Management must have integrity and talent.
Coca-Cola Amatil has many experienced individuals at its highest ranks. CEO Alison Watkins has experience in consumer goods, but also in banking and agriculture. With two-thirds of her remuneration tied to the performance of the company and rights to 774,000 shares, her interests appear aligned with shareholders. She is overseen by an experienced board lead by David Gonski.
4. No business is worth an infinite price.
Buffett and Munger made Berkshire into a $US430 billion company by buying great businesses at good prices. In my opinion, I doubt they would see Coca-Cola Amatil shares as a bargain today. On face value, they appear cheaper than their parent but it does not have its brand power, diversification and economics.
Foolish Takeaway
In summary, I think many of the appealing features of The Coca-Cola Company are passed on to Coca-Cola Amatil. However, there are some features that are missing and Amatil is, at its core, simply a manufacturer.
While Buffett might be tempted to buy it, given its current valuation and his existing Coca-Cola shares, I doubt he'd enter a position in Coca-Cola Amatil anytime soon.
