Wednesday, February 16, 2011

Don’t Blindly Follow the NPV Rule: The Business Model and Strategy Matters

Dr. John O'Brien and Dr. Sanjay Srivastava


Coca-Cola Company (NYSE: Ticker KO) reversed their 24-year old business strategy on February 25, 2010, by confirming its agreement to acquire the North American operations of its largest bottler in a deal valued around $13 billion.  A day after the announcement the market slashed KO’s market capitalization by just over $6.8billion by trading down from around $54.39 to $51.46 per share.  Almost 1-year later, February 9, 2011 KO announced strong 4th quarter results and net revenue growth that beat the analyst consensus. A major driver being structural changes related to Coca Cola Enterprises (Ticker: CCE).  After this announcement KO opened at $64.01 resulting in many more billions of dollars being added since the original announcement.


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