Coca-Cola: Ruling of $6 Billion Tax Liabilities To Be Appealed; Fair Value Estimate Maintained

Wide-moat Coca-Cola issued a statement on Aug. 2 confirming that the US Tax Court has ruled to support the position of the US Internal Revenue Service that the beverage giant owes $2.7 billion in taxes ($6 billion including interests) relating to the 2007-09 period. However, the market appeared unfazed, with shares up 1% in trading. We think the absence of material price movements on the news is at least partly due to Coke’s detailed disclosure regarding the ongoing tax case in recent filings that eased investor angst. We also think that the market appears to side with Coke’s own assessment of the tax situation, with the firm’s tax reserve related to the dispute at a more modest $450 million.