It appears Bank OZK (formerly Bank of the Ozarks – OZK) is putting its litigation behind it. This class action was based on alleged false and misleading statements in SEC filings regarding two CRE loans gone bad.
This company has been rated a Hold on our side since their debacle came to light (2018). Although there had been whispers of issues in the loan book, we chose to ignore them until the bottom dropped – and then it was too late for any meaningful action – other than a slight average down on the drop to play the wing and a prayer game.
Although OZK only holds an ancillary position in the portfolio (< 1%), it’s significant enough to trigger a notice and review to determine if any settlement proceeds are forthcoming.
The most important fact becomes the class definition, which is between February 19, 2016 and October 18, 2018. The secondary fact becomes the minimum loss threshold which is set at $10. As the chart reflects, one purchase was ill-timed – I would argue, a result of inflated pricing (the term used in the lawsuit) because of their alleged misdeeds. In fact, had I made this purchase a mere 70 days later I would be in line for a settlement payment of hundreds of dollars. As it is, my average down purchase is eligible but falls short of the minimum required for payout.
Moral being: It’s a given you can’t time the market nor can you time class action inclusion either.
The good news is my holding is above water once again and the dividends continued unabated. Plus, appearances are Comerica (CMA) is building a stake. The question becomes whether CMA’s interest is as an investment or future acquisition. Therefore, OZK has become a buy on weakness not to exceed a 1% holding.
The Coca-Cola Strategy Update
One of my longer running strategies that remains unresolved will remain a mystery for at least another year. Coca Cola (KO) announced the delay of the IPO of their African bottler (CCBA) until 2023. With the separation of their bottling operation, I put in place the purchase of most of the publicly traded bottlers and have been tracking their performance versus the mothership. The results have been a mixed bag, but my nagging question has been – and continues to be – are the parent company’s results artificially inflated by sales of bottler stakes?
One example being the merger of Coca-Cola Amatil into Coca-Cola European Partners (CCEP). KO’s 30% Amatil stake and 18% CCEP stake became a 19.5% position in the merged entity with the remainder essentially a cash-out.
Then there’s this week’s announcement of the sale of the Vietnamese and Cambodian bottlers to Swire. These bottlers are currently owned by Coca-Cola (Japan), which is a full subsidiary of KO. Two questions arise from this transaction, 1) Why Swire rather than Coca-Cola Bottlers Japan Holdings of which KO has an existing 18% stake (15.6% through the captive Coca-Cola (Japan) and 2) Since it is a cash transaction and Swire is one of the few bottlers without a KO ownership stake, is this another instance of profits being goosed by asset sales?
The only comment on KO’s earnings call was, “I think Swire was the right partner for Vietnam and Cambodia. And then obviously, we’re left with very little of the global bottling system, predominantly some of the operations we own in India and then CCBA.”
They have started the bottler consolidation process in India but it appears to be an equally complex endeavor as the 21st Century Beverage Partnership Model was in the US. Until these final two legs are finished, the determination as to whether the performance of the marketing group (KO) or the bottlers is the better model remains to be seen.
Next up will be month end results in a week and a half. Hopefully your month has been an improvement!
Seeking Returns 