Coke’s $2.15bn bite of Monster Energy: Soda giant’s ‘exclusive energy play’

Coke says that Monster Energy will become its ‘exclusive energy play’ after it finally moved to seal a significant 16.7% stake in the controversial beverage company.

Monster will transfer all its non-energy brands (Hansen’s Natural Sodas, Peace Tea, Hubert’s Lemonade and Hansen’s Juice Products) to Coke, while the soda giant will hand over ownership of its – frankly underwhelming – energy portfolio: Burn, NOS and Full Throttle.

Rodney Sacks, Monster Energy CEO, said the deal was a unique opportunity for Monster and its shareholders since it gave “enhanced access” to what he said was the world’s most powerful and extensive global distribution system – Coke has carried Monster in the US and Canada since 2008.

Here's our new article on the 5 Key Talking points to come out of Coca-Cola's 'Monster marriage'.

“We become Coca-Cola’s exclusive energy play, with a robust portfolio led by our Monster Energy line and Coke’s energy brands,” Sacks said.

“Our business will be bolstered by the energy brands we will acquire, providing us with complementary energy product offerings in many geographies, as well as access to new channels, including vending and specialty accounts,” he added.

Under the terms of the deal slated to close in late 2014/early 2015 – it is subject to regulatory scrutiny and will also see Coke gain two seats on Monster’s board – Coca-Cola has pledged to develop an existing distribution deal with Monster in the States and Canada.

Wells Fargo Securities said in a note reacting to yesterday’s breaking news that it thought the transaction “very powerful” and predicted it would accelerate Monster’s international growth given enhanced access to Coke’s distribution network, and also benefit Coke.

“Coca-Cola’s distribution of Monster’s energy portfolio will likely accelerate Coke’s overall global volume growth and Monster’s global volume should accelerate via its access to new markets and channels,” the analysts, led by Bonnie Herzog, wrote.

Monster can focus on what it does best, selling energy drinks

“By taking ownership of Coca-Cola’s energy brands and ridding itself of its non-energy, warehouse brands, Monster should be able to focus on what it does best – marketing and selling energy drinks to global consumers,” they added.

“Additionally, we believe Monster non-energy brands such as Peace Tea, which will now be owned and managed by Coca-Cola, could generate more upside potential,” they said.

With around 80% of Monster sales currently coming from the US, Wells Fargo noted, the brand has relatively little share (15%) of an international energy segment worth around $40bn in retail sales.

What else does Coke get from the deal? Well, access to a growth category where it’s struggled to gain access in the past, secured in a “capital efficient way”, as CEO Muhtar Kent put it.

“This long-term partnership aligns us with a leading energy player globally, brings financial benefit to our company and our bottling partners, and supports broader commercial strategies with our customers to bring total beverage growth opportunities that will also benefit our core business,” Kent said yesterday.

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