Coke says it improperly influenced Burger King promotion

  • Business
  • Wednesday, 18 Jun 2003

ATLANTA (AP) - Coca-Cola Co. admitted that employees rigged a marketing test of Frozen Coke at Burger King Corp. stores three years ago, one of a series of allegations in a whistleblower lawsuit under investigation by the Securities and Exchange Commission. 

Burger King said Tuesday it was disappointed by Coke's actions in the test and is continuing its own probe. The fast-food chain is among Coke's largest customers. 

An auditing committee, investigating several allegations by a former Coke manager, also found that the company's fountain division had improperly valued some equipment. 

The company will take a $9 million pretax writedown to correct the value. 

The former manager, Matthew Whitley, also accused the world's largest beverage maker of discriminating against minority employees.  

In a lawsuit containing his complaints, he said he was fired for raising his concerns to president and chief operating officer Steve Heyer. 

Coke's audit committee said Tuesday there is no evidence it discriminates against minorities or women. 

It also said it found no evidence to support another charge: that the fountain division improperly shifted $4 million of capital funding to a fountain project in 2002. 

The Atlanta-based company has said Whitley was fired after Coke refused a demand to pay him $44.4 million. 

He lost his job as finance director for supply management at the fountain division in March, amid a reorganization that eliminated 1,000 jobs. 

The fountain division handles sales of fountain-dispensed beverages to restaurants, movie theaters and other venues. 

Whitley's suit, filed last month, said company officials rigged a marketing test of Frozen Coke at Burger King restaurants. It also claimed Coke used funds fraudulently to boost equipment sales. 

The Frozen Coke promotion was conducted at Burger King outlets in Richmond, Virginia, in March 2000.  

An internal company document filed as part of the lawsuit said the tactic was to hire an outside consultant to spend up to $10,000 to buy value meals at Burger Kings in Richmond, boosting demand for Frozen Coke and other frozen drinks. 

The suit says the Richmond promotion resulted in a $65 million Frozen Coke investment by Miami-based Burger King. 

Coke said Tuesday its investigation confirmed that some members of the Coke fountain division's account team improperly influenced the marketing test results, and said the employees were disciplined in 2001. 

The statement was the first time Coke acknowledged the issue publicly. 

Burger King officials are reviewing the facts of the case, and want to determine whether they had been informed of the rigged marketing test before the lawsuit was filed, spokesman Rob Doughty said. 

Coke spokesman Ben Deutsch said the SEC recently opened an informal inquiry of Whitley's allegations and has requested documents from Coke. 

In a letter late Tuesday to Burger King chief executive Brad Blum, Heyer apologized for the promotion flap. 

"These actions were wrong and inconsistent with the values of the Coca-Cola Co,'' he said. 

In a statement, Burger King said, "We expect and demand the highest standards of conduct and integrity in all of our vendor relationships and will not tolerate any deviation from these standards.'' 

Todd Stender, an analyst with Crowell, Weedon and Co. in Los Angeles, said the flap with Burger King harms Coke's image. 

"The No. 2 player, Burger King, really adds a significant amount of volume for Coke, and something like this really doesn't bode well for their image,'' he said. 

Marc Garber, a lawyer for Whitley, said Coke's announcement served as vindication for his client. Coke said it would address other issues raised in the lawsuit later. 

Coke shares fell $1 to close at $47.20 Tuesday on the New York Stock Exchange. - AP 

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