August 21, 2014
Last week, The Coca-Cola Company ("Coke") decided that it needed a boost of energy. Just six months after acquiring a significant stake in Green Mountain Coffee, Coke has announced that it will pay $2.15 billion for a 17% stake in Monster Beverage Corporation ("Monster"). As a result of this cash payment, Coke will also gain two seats on Monster's board of directors.
Two years ago, Coke and Monster nearly struck a similar deal but could not agree on terms. Coke has long been interested in making an investment in Monster so that it can gain access to the fast-growing worldwide market for energy drinks in order to offset slowing growth in soda sales. A partnership with Coke will be valuable to Monster for a number of reasons, but particularly, because it will gain access to Coke's distribution channels. When the deal was announced, Monster referred to Coke's distribution network as "the most powerful and extensive system in the world."
This deal will join the largest global soda maker with the largest domestic energy drink brand. Following the announcement, shares of Monster were up as much as 30% in after-hours trading and Coke shares were up 1.3% within the same time frame. While this looks like a promising deal for both companies, only time will tell if this partnership can deliver sustainable value and increasing cash flow to shareholders.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).