Coca-cola to buy stake in Monster

It's official – four months after Coca-cola denied rumours it was in discussions to strike a deal with energy drink manufacturer Monster Beverage, the two companies have announced they’re in business together

The last few years have seen Monster energy drink take South Africa and other parts of the world by storm. The world’s largest beverage manufacturer, Coca-Cola, could not help but take notice and is set to buy a stake in the Monster Beverage business.

The manufacturer of energy drinks NOS, Full Throttle and Burn, is prepared to cough up $2,15 billion (R22,7 billion) for a 16,7% stake in the Monster business, according IOL.

Coca-Cola’s strategic move is intended to boost its share in the energy drink market. This is important since their own energy products have been struggling to catch up with the likes of Red Bull, Monster’s biggest competitor. A stake in Monster, may just level the playing field.

The business partnership between Coca-cola and Monster would see the distribution partnership between the two businesses being solidified further, something Coke’s profits have already benefited from.

Coke is also expected to transfer ownership of its energy drink division to Monster. And in turn Monster will hand over its non-energy brands such as Hansen’s Natural Sodas, Peace Tea and Hubert’s Lemonade.

The Coca-Cola Company will become Monster’s preferred distribution partner globally and Monster will become The Coca-Cola Company’s exclusive energy play

In a joint statement the two companies said, “The Coca-Cola Company will become Monster’s preferred distribution partner globally and Monster will become The Coca-Cola Company’s exclusive energy play.”

Coca-Cola chairman and chief executive, Muhtar Kent, was quoted as saying, “Our equity investment in Monster is a capital-efficient way to bolster our participation in the fast-growing and attractive global energy drinks category. This long-term partnership aligns us with a leading energy player globally.”

Bloomberg reports that beyond the distribution channels they would share, they would also share their production and marketing. Coca-Cola currently distributes Monster both in the US and Canada, but would open other distribution channels to ensure the energy drink goes international where it has a footprint.

New York-based analyst at Sanford C Bernstein & Co, Ali Dibadj, told Bloomberg, “It gives them exposure to one of the fastest-growing segments of carbonated soft drinks globally.”

“The category’s growth is clearly slowing in the US, but the potential is very strong globally,” said Dibadj.

This deal is one of Coca-Cola’s investment strategies of buying equity in new smaller brands and technologies, a way of re-directing revenue into its business in a constantly shifting market.

The beverage manufacturer increased its equity stake in coffee brewing business Keurig Green Mountain Inc( CMCR) to 16% in May, turning it into CMCR’s biggest shareholder.

Kent told Bloomberg, “There is a pattern here, and this is what we are talking about in terms of a different approach to innovative partnerships.”

“We look at deploying capital in an intelligent and efficient manner to get us a very important footprint in growth categories,” he added.

Coca-Cola will be deploying two of its directors sit on the Monster board to ensure there is a synergy between the two businesses going forward.

SOURCES: IOL, Bloomberg.