Coca-Cola, like the other companies in the dividend portfolio, has raised its dividend in the past 15 months.LUCAS JACKSON/Reuters
Coca-Cola Co., the world's largest beverage company, agreed to buy a 17 per cent stake in Monster Beverage Corp. for $2.15-billion, increasing its bet on the burgeoning energy-drink market.
The move is part of a deal that will include the transfer of Coca-Cola's energy drinks NOS, Full Throttle, Burn, Mother and Play to Monster, according to a statement today. Monster, meanwhile, will shift Hansen's natural sodas and juices, Peace tea and Hubert's lemonade to Atlanta-based Coca-Cola.
Under the agreement, the two companies will share marketing, production and distribution. Coca-Cola, which already distributes Monster in the U.S. and Canada, will expand the arrangement globally, helping the energy brand grow overseas.
"It gives them exposure to one of the fastest-growing segments of carbonated soft drinks globally," said Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co. "The category's growth is clearly slowing in the U.S., but the potential is very strong globally."
The investment fits into Coca-Cola's strategy of taking equity stakes in promising new brands and technologies, especially as its main source of revenue is under threat from a shift to healthier habits. In May, Coca-Cola said it would boost its stake in Keurig Green Mountain Inc. to 16 per cent, making it the coffee brewer's largest shareholder.
Board Members The Monster deal is "a capital-efficient way to bolster our participation in the fast-growing and attractive global energy drinks category," Coca-Cola Chief Executive Officer Muhtar Kent said in the statement. The company also will add two directors to the board of Corona, California-based Monster.
While Coca-Cola has helped distribute Monster since 2008 and owns smaller brands such as Full Throttle and NOS, it doesn't have its own major energy drink. Monster and Red Bull, owned by Austria's Red Bull GmbH, have the largest share of the market worldwide, according to Morningstar Inc.
Skadden, Arps, Slate, Meagher & Flom LLP advised Coca-Cola on the deal. Barclays Plc served as Monster's financial adviser, while Jones Day provided legal counsel.
Coca-Cola explored an acquisition of Monster in early 2012, a person familiar with the matter has said. The talks ended without a deal because Coca-Cola decided that Monster's asking price was too high, according to the person.
Buying a minority stake is less risky, given the recent moves by U.S. regulators to investigate energy drinks' caffeine content, Dibadj said. Coca-Cola may end up buying the rest of the business once the smoke clears, he said.
Still, it may not have benefited as much by waiting to act, he said.
"Coca-Cola should have taken this move faster," Dibadj said.