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The Coke Monster

August 15, 2014 | About:

Coca-Cola (KO) takes a 17% stake in Monster Beverage Corp (MNST), causing MNST shares to jump nearly 30%. This seems like a very smart strategic play by KO, conservatively entering into the energy drink market while limiting MNST expansion into the non-energy drink market. This helps KO develop a new revenue stream, testing the waters before diving completely in.

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Overall I think it's a good deal for Coke and would be interesting to see how they'll incorporate Monster into the fold, whether they'll increase their stake by buying the company or maintaining the same ownership level. Coke is diversifying and trying to get exposure to the energy drink space with one of the most recognized energy drinks available. MNST is a direct competitor with Pepsi's (PEP) AMP energy drink. KO will now be able to appeal to the action sports market, something PEP has been doing with their PepsiMax commercials.

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Analysts may be scratching their heads wondering why KO didn't buy MNST completely, especially after the price jump. I think Coke played it well, as most of the buyers may not stick around for the long run and sell their positions within the next couple of weeks to lock in their gains. Coke also has the ability to make some changes to MNST that will add value to them in the long run without having to pay 10 times the book value of MNST. As Coke builds MNST in a way that would benefit them, MNST will be streamlined into KO's core business operations without the hassle of integrating two completely different corporate cultures from scratch.

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