Coca-Cola is a behemoth in every way. This means huge profits and billions of dollars in financial impact.
The company, which sells its namesake drink nearly everywhere in the world, is locked in a protracted dispute with U.S. tax authorities over the $16 billion it may owe.
Although the full amount is not yet due, Coca-Cola is preparing for the possible costs by selling 1 billion euros of new debt. financial times reported Thursday.
The beverage company said last week it was prepared to pay $6 billion in unpaid taxes and interest from about 15 years ago, following a U.S. Tax Court ruling.
Coca-Cola plans to issue two 500 million euro bonds and use the proceeds for “potential payments” in a dispute with the U.S. Internal Revenue Service (IRS).
The company’s “reverse Yankee” move, in which U.S. companies raise funds in the euro or pound bond markets, has become increasingly common among companies seeking access to debt financing. It allows U.S. companies to take advantage of the monetary policies of different regional central banks. It may also be a useful tool if they have a large business in Europe and need to finance in local currency.
Bicycle company Harley-Davidson and consumer giant Colgate-Palmolive have both taken the reverse Yankee route in recent years. Earlier this year, Johnson & Johnson opted to take this approach, taking advantage of Europe’s lower borrowing costs to raise 2.5 billion euros.
This form of bond issuance saw a surge in 2019 when European Central Bank stimulus measures impacted European bond yields. According to research by Bank of America, US companies have raised about 30 billion euros through EU bonds as of May.
Investment firm T. Rowe Price said this bodes well for Europe because investors in the region can gain exposure to U.S. companies without the risk of dollar debt.
Coca-Cola raised 1 billion euros in euro bonds and $3 billion in U.S. dollar bonds earlier this year to fund the deal and help offset IRS case costs.
A U.S. court ruling found that the Atlanta, Georgia-based company made “astronomical” profits by doing business in low-tax countries and avoiding the eyes of U.S. authorities. Since Coca-Cola has manufacturing sites around the world, this could result in $16 billion in liabilities, enough to wipe out a year and a half of the soft drinks giant’s profits.
Coca-Cola plans to appeal the court’s decision.
Representatives for the company did not immediately return wealthRequest for comment.
