REG - Coca-Cola EP PLC - Letter to Shareholders

Coca-Cola Europacific PartnersAnnouncement

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RNS Number : 3226I  Coca-Cola Europacific Partners plc  12 May 2025

Coca-Cola Europacific Partners plc (CCEP or the Company)

 12 May 2025

 

Dear Shareholder of Coca-Cola Europacific Partners plc:

We are asking for your support in voting "FOR" all resolutions, as recommended
by the Board of Directors, at our upcoming Annual General Meeting on 22 May
2025.

We are writing to provide additional context regarding certain resolutions set
out in our notice of meeting dated 7 April 2025 (the Notice of Meeting).
Specifically, we would like to supplement information in Resolution 24 (Waiver
of mandatory offer provisions set out in Rule 9 of the Takeover Code),
Resolution 5 (regarding the re-election of Manolo Arroyo) and Resolution 8
(regarding the re-election of José Ignacio Comenge).

We have received proxy advisory service reports from Glass Lewis & Co.
(Glass Lewis), Institutional Shareholder Services (ISS) and Institutional
Voting Information Service (IVIS). While Glass Lewis recommends a "FOR" vote
in respect of each resolution, ISS recommends voting "AGAINST" Resolutions 5,
8 and 24 and IVIS has given a "RED" designation in respect of Resolution 24.

We are firmly committed to good governance and transparency for our
shareholders. We believe the information provided below will assist you in
better understanding our recommendations.

Unless stated otherwise, defined terms used in this letter have the same
meaning as in the Notice of Meeting.

Resolution 24 (Waiver of mandatory offer provisions set out in Rule 9 of the
Takeover Code)

As set out above, the report from Glass Lewis recommends a vote "FOR"
Resolution 24, whilst the report from ISS recommends a vote "AGAINST"
Resolution 24. Glass Lewis and ISS have recommended voting "FOR" Resolutions
27 and 28 (Authority to purchase own shares).  The report from IVIS has given
a "RED" designation in relation to Resolution 24, while also recognising that
the voting decision should be a matter for shareholder judgment.

Resolution 24 is a standing item at each Annual General Meeting of the Company
to enable CCEP to give effect to Resolutions 27 and 28. Therefore, a share
repurchase cannot occur unless Resolution 24 is approved and a vote "AGAINST"
Resolution 24 will have the same effect as a vote "AGAINST" Resolutions 27 and
28.

Resolution 24 seeks approval from the Independent Shareholders of a waiver
under Rule 9 of the Takeover Code. Rule 9 applies when any entity holds 30% or
more of the voting rights of a company. When a company purchases its own
voting shares, any resulting increase in the percentage of shares carrying
voting rights will be an acquisition for the purpose of Rule 9. CCEP currently
has one shareholder, Olive, which owns approximately 36.1% of the issued share
capital of CCEP and so any share repurchase would automatically trigger Rule 9
and result in an obligation on Olive to make a general offer to shareholders
for all the remaining equity share capital of CCEP.

Rule 9 of the Takeover Code acts as a safeguard to shareholders and the Panel
has already reviewed and agreed, subject to the Independent Shareholders'
approval, to waive the application of Rule 9.

However, ISS is still recommending voting against Resolution 24, as it has
every year for the past nine years. The ISS Proxy Voting Guidelines for the
United Kingdom & Ireland states, "In line with the Pensions and Lifetime
Savings Association (PLSA), ISS will usually recommend a vote against Rule 9
waivers." 1  However, beginning in 2020, the PLSA changed its policy on Rule 9
waivers to remove language explicitly stating that shareholders would normally
vote against Rule 9 waiver resolutions made in connection with share buybacks.
The 2019 PLSA Stewardship and Voting Guidelines for resolutions seeking share
buybacks stated, "Shareholders would normally vote against the resolution
proposing a waiver of Rule 9 of the Takeover Code." 2  However, from 2020 the
PLSA Guidelines stated, "Investors should consider voting against a resolution
for share buybacks if: "the resolution proposes a waiver of Rule 9 of the
Takeover Code  and  the buy-back is not deemed a prudent use of the company's
cash resources, is not supported by cash flows of the underlying business and
introduces excessive and unsustainable leverage" 3  (emphasis added). We
understand that ISS has still not updated its own policy to reflect this
change.

As shareholders will be aware, CCEP announced a share buyback programme on 14
February 2025, pursuant to which the Company expects to repurchase up to
€1bn of ordinary shares (in aggregate) across certain US and UK trading
venues in the period to February 2026 (subject to market conditions). A
shareholder vote in favour of resolutions 24, 27 and 28 respectively is
required for CCEP to continue this programme.

CCEP is comfortable that it would only effect a share buyback under the
authority sought if the buyback was supported by the Company's cash flows and
would not introduce excessive and unsustainable leverage.

We believe ISS continues to recommend against our request because of a rigid,
outdated policy that does not take into account our stated rationale or
Olive's stated intentions, which have not changed since Olive entered into the
Shareholders' Agreement with us.

Whilst IVIS has given Resolution 24 a "RED" designation and noted that it is a
matter for shareholder judgement in light of the potential for Olive's
shareholding to increase, the report from IVIS goes on to acknowledge the
Company's justifications in respect of Resolution 24 and we believe that the
points raised are addressed by Olive's stated intentions and the fulsome
disclosure in the Notice of Meeting.

In the Notice of Meeting, Olive confirmed that it has no intention of changing
its approach to CCEP as a result of any increase in its shareholding due to
any share repurchase. It has no intention to seek any change to the general
nature or any other aspect of the Company's business.

Currently, Olive holds approximately 36.1% of the issued share capital of
CCEP. If CCEP were to repurchase all the Ordinary Shares for which it is
seeking the Buyback Authorities, Olive's maximum potential shareholding would
increase to approximately 40.1%. We note that completion of the current
announced share buyback programme (at the prevailing CCEP share price) is
expected to result in substantially less than 10% of the Company's share
capital being acquired.

Additionally, regardless of the outcome of these resolutions, Olive's
shareholding would not carry more than 50% of such voting rights, and any
further increase in its shareholding will be subject to the provisions of Rule
9 of the Takeover Code.

Given Olive's stated position, as well as the regulatory safeguards the Panel
already has in place, we believe that ISS's concerns over "creeping control"
are therefore unfounded, and that ISS's recommendation against Resolution 24
is unwarranted.

Glass Lewis agrees with our recommendation. The report from Glass Lewis
states:

·    "We believe the terms of this proposal are reasonable. The Takeover
Code was instituted as a shareholder safeguard in the event that a major
shareholder sought a larger stake in the Company, possibly to the detriment of
other shareholders.

·    In this case, we note that following a repurchase of shares or
exercising of options, the concert party may increase their ownership stake in
the Company but may not gain control of it without triggering a full takeover
bid. Further, we note that the waiver will not apply to an acquisition of
ordinary shares.

·      We do not believe that this proposal is connected with any sort
of takeover attempt by this party, and thus, we do not believe this proposal
should warrant shareholder concern at this time. We will, however, monitor the
concert party's beneficial ownership in the event that a takeover attempt
becomes more likely."

We also believe that IVIS's concerns with regard to the potential increase in
Olive's shareholding, reflected by its "RED" designation in respect of
Resolution 24, are sufficiently addressed by the steps taken by the Company to
engage with its shareholders on this topic, the benefits to the Company that
accrue as a result of Resolution 24 (both as acknowledged in the IVIS report)
and Olive's stated intentions in respect of the Company.

The CCEP Board and management firmly believe these resolutions are in the best
interests of Shareholders as they provide the ability to return cash to
Shareholders, enabling CCEP to continue to deliver long-term shareholder
value. Accordingly, the Board and management of CCEP recommend voting "FOR"
Resolutions 24, 27 and 28, consistent with the recommendations of Glass Lewis.

Resolution 5 (re-election of Manolo Arroyo) and Resolution 8 (re-election of
José Ignacio Comenge)

The report issued by Glass Lewis recommends voting "FOR" Resolution 5 (the
re-election of Manolo Arroyo) and Resolution 8 (the re-election of José
Ignacio Comenge). The report generated by ISS notes that its policy requires
remuneration committees to be comprised solely of independent directors. It
therefore recommends a vote "AGAINST" the re-election of Mr Arroyo and Mr
Comenge as non-independent members of CCEP's Remuneration Committee.

The ISS 2025 Benchmark Report for CCEP states that a vote AGAINST the
re-election of Manolo Arroyo and José Ignacio Comenge is warranted because
"potential independence issues have been identified and they currently sit on
the Remuneration Committee, preventing the composition of this Committee from
adhering to UK best practice recommendations for a company of this size." 4 
(#_ftn4) According to ISS's own calculations, our Remuneration Committee
consists of 60% of independent directors.

Both Mr Arroyo and Mr Comenge are shareholder representatives. Mr Arroyo is
Executive Vice President and Global Chief Marketing Officer at The Coca-Cola
Company, the parent company of European Refreshments Unlimited Company, which
owns 17.15% of the Company's issued share capital. Mr Comenge is a director of
Olive.

The CCEP Board and the Remuneration Committee Chairman, John Bryant, are of
the opinion that the re-elections of Mr Arroyo and Mr Comenge are nonetheless
appropriate because:

·    Their re-election would be compliant with the terms of reference of
the Remuneration Committee, which stipulate that the committee must be
composed of a majority of Independent Non-executive Directors (INEDs),
including for quorum requirements (notwithstanding the presence of Mr Arroyo
and Mr Comenge, the Remuneration Committee comprises a majority of INEDs).

·    Although Mr Arroyo and Mr Comenge are not independent, they do not
have any conflicts of interest and it is avoiding such conflicts that is the
main purpose of prescribing that the members of the Remuneration Committee
should be independent - in particular, to avoid any executive director being
involved in decisions where a conflict of interest exists.

·    As members of the Remuneration Committee, both Mr Arroyo and Mr
Comenge can be expected to act to drive the long-term success of the Company
for the benefit of all Shareholders, in the same way as the INEDs.

The CCEP Board and management firmly believe this resolution is in the best
interests of Shareholders and recommend voting "FOR" Resolutions 5 and 8,
consistent with the recommendation of Glass Lewis.

We would be glad to discuss our recommendations in relation to Resolutions 5,
8, 24, or any other resolution, further with you, should you wish. If you have
any questions, or need assistance in submitting your proxy to vote your
shares, please contact us at shareholders@ccep.com.

Thank you for your support.

 1  See ISS 2025 Proxy Voting Guidelines for United Kingdom and Ireland.
https://www.issgovernance.com/file/policy/active/emea/UK-and-Ireland-Voting-Guidelines.pdf?v=2025.1
(https://www.issgovernance.com/file/policy/active/emea/UK-and-Ireland-Voting-Guidelines.pdf?v=2025.1)

 2  See 2019 PLSA Stewardship and Voting Guidelines.
https://plsauat.cantarusdev.com/Portals/0/Documents/Policy-Documents/2019/CG_Voting%20Guidelines%202019%20FINAL.pdf
(https://plsauat.cantarusdev.com/Portals/0/Documents/Policy-Documents/2019/CG_Voting%20Guidelines%202019%20FINAL.pdf)

 3  See 2020 PLSA Stewardship and Voting Guidelines.
https://plsauat.cantarusdev.com/Portals/0/Documents/Policy-Documents/2020/PLSA-Stewardship-Guide-and-Voting-Guidelines-180220.pdf
(https://plsauat.cantarusdev.com/Portals/0/Documents/Policy-Documents/2020/PLSA-Stewardship-Guide-and-Voting-Guidelines-180220.pdf)

 4  ISS 2025 Proxy Analysis & Benchmark Policy Voting Recommendations for
Coca-Cola Europacific Partners plc.

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