NEW YORK - Global beverages giant Coca-Cola has acquired a 16.7 percent stake in Monster Beverage Corp for $2.15 billion in cash as part of a long-term strategic partnership that will help both the companies to expand in faster-growing energy drinks category.
"Importantly, the partnership strategically aligns both companies for the long-term by combining the strength of the Coca-Cola Company's worldwide bottling system with Monster's dedicated focus and expertise as a leading energy player globally," Coca-Cola said in a statement Thursday..
Under the agreement, to optimally benefit from each company's respective brand marketing, production and distribution strengths and optimize the parties' capital and resource allocation, the Coca-Cola Company will transfer ownership of its worldwide energy business, including NOS, Full Throttle, Burn, Mother, Play and Power Play, and Relentless, to Monster; while Monster in turn will transfer its non-energy business, including Hansen's Natural Sodas, Peace Tea, Hubert's Lemonade and Hansen's Juice Products, to Coke.
The Coca-Cola Company system will help Monster to expand distribution of its energy drinks in the U.S. and Canada as its preferred global distribution partner. In fact, only Monster brands of energy drinks will be distributed by Coke.
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," said Muhtar Kent, Chairman and Chief Executive Officer of the Coca-Cola Company.
"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, 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."
During a conference call, Kent revealed that the company has the option to increase its stake in Monster to 25 percent but cannot exceed that amount in the next four years. The transaction is expected to close late this year or early 2015.
For Coke, the transaction represents an opportunity to increase its footprint in energy drinks, a $27 billion market globally, according to Euromonitor International.
The alliance comes at a time when Coke is seeing a shift from colas to energy drinks in the Western markets. Last month, Coke had reported flat revenue growth in North America, its biggest market, during the last quarter mainly due to a decline in diet Coke sales.
Two year back, Coke had refuted a Wall Street Journal report claiming the beverages giant was in talks to buy Monster.
Monster chief executive Rodney Sacks during a conference call said that the company would be switching its distribution agreements in the US with Belgian-Brazilian multinational beverage and brewing company Anheuser-Busch InBev to Coke.
"We believe it will be a win-win strategy" Sacks said.
Given Coke's global footprint, the alliance will help Monster to new markets like China and Russia, and increase its footprint in countries like Brazil which show great growth potential.
"Our business will be bolstered by The Coca-Cola Company 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," Sacks said.
Hilton H. Schlosberg, Monster's Vice Chairman and President said the transaction is expected "to significantly accelerate our growth and results of operations internationally, and we plan to review all options available to return a substantial amount of cash to our shareholders."
Coca-Cola shares rose 1.2 percent in after-hours trading, while Monster surged 22 percent.
On the call, both companies downplayed growing concerns over energy drinks, stating they will be more strictly regulated. Monster is facing lawsuits over its advertising practices and injuries allegedly caused by its flagship energy drink, reported Reuters.