Monster Beverage Corp. (MNST) shares soared as much as 32% to $93.49 in after-hours trading Friday after Coca-Cola (KO) said it will pay $2.15 billion in exchange for a 16.7% stake in energy-drink maker – an investment that Coca-Cola could eventually increase to 25%.
The move is part of a blockbuster deal that will see Coke transfer ownership of its energy business, which includes energy drinks like NOS, Full Throttle, Burn, Mother and Play to Monster. In turn, Monster will shift its non-energy business, including Hansen’s natural sodas and juices, Peace tea and Hubert’s lemonade to Atlanta-based Coca-Cola. Coke will also place two directors on Monster’s board as part of the deal.
“The Coca-Cola Company continues to identify innovative approaches to partnerships that enable us to stay at the forefront of consumer trends in the beverage industry,” Muhtar Kent, chairman and CEO of The Coca-Cola Company, said in a press release. “Our equity investment in Monster is a capital efficient way to bolster our participation in the fast-growing and attractive global energy drinks category.”
Analysts had suggested for some time that Coca-Cola might acquire Monster as the world’s largest soda maker seeks to diversify and expand its business into faster-growing segments such as energy drinks. The move comes at a time when Coca-Cola’s flagship soda business is stagnating. Coke said last month that its quarterly revenue in North America, its biggest market, was flat, partly driven by a decline in diet Coke sales.
As for Monster, the transaction “represents a unique opportunity [for the company] and its shareholders,” said Rodney C. Sacks, Chairman and Chief Executive Officer of Monster. Through this deal “[we] gain enhanced access to The Coca-Cola Company’s distribution system, the most powerful and extensive system in the world. At the same time, we become The Coca-Cola Company’s exclusive energy play, with a robust portfolio led by our Monster Energy line and The Coca-Cola Company’s energy brands…”
The deal from Coke comes after the company paid $1.25 billion in exchange for a 10% stake in Green Mountain Coffee Roasters (GMCR) back in February.
The Monster-Coke transaction is expected to close later this year or in early FY2015.
Following the announcement KO gained 70 cents, or 1.74%, to $40.88 in after hours trading.