The Coca-Cola Company (NYSE:KO), a $176 billion market capped company whose share prices are down almost 3% this year, announced getting 17% hold of energy beverage maker and marketer Monster Beverage Corp (NASDAQ:MNST). The development comes as a shot in the arm for Coca-Cola as SunTrust Robinson Humphrey’s managing director Bill Chappell observed in an interview on CNBC.
The Coca-Cola Company (NYSE:KO), whose revenue and profits have been under threat from growing competition and a lack of interest in carbonated soft-drinks in markets such as the U.S., acquired a 16.7% stake in Monster Beverage Corp (NASDAQ:MNST). Coca-Cola has the option to increase its stake in Monster up to 25%.
As Chappell explained, it is emerging that a deal between Coca-Cola Company (NYSE:KO) and Monster Beverage Corp (NASDAQ:MNST) is something that was long-anticipated, dating back to nearly 2 years ago.
“It is something we thought might happen in terms of Coke taking up the whole company about two years ago. But then the negative headline from the energy industry and the stock price surge kind of quashed that [...],” said Chappell.
He said that the deal between Coca-Cola Company (NYSE:KO) and Monster Beverage Corp (NASDAQ:MNST) goes beyond just taking a minority interest in a company with widespread and strong distribution networks, but also involves reworking distribution agreements and even licenses.
“This is similar to taking up a minority interest in a company to nail down the partnership. But this goes even a couple of steps further in terms of changing the distribution agreements worldwide and transferring licenses and businesses,” he said.
Chappell further said that Coca-Cola needs grow, and Monster provides an opportunity for that given its leading market share in the U.S. energy drinks market and even elsewhere around the world where it is quickly gaining share. The Coca-Cola Company (NYSE:KO) paid $2.15 billion for the deal to take a minority stake in Monster Beverage Corp (NASDAQ:MNST).