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What: Shares of Monster Beverage (NASDAQ:MNST) started the last trading day of the week by surging more than 30% higher on news that Coca-Cola (NYSE:KO) has agreed to acquire a 16.7% stake in the world's largest publicly traded energy-drink purveyor for roughly $2.15 billion. The stock has slipped ever so slightly from the day's peak but has nonetheless held on to gains of at least 25% throughout the day.
So what: This deal, which could well represent a tectonic shift in the energy drink battle between leaders Monster and privately held Red Bull, was announced in an SEC filing posted this morning. In addition to the minority stake -- which is already worth roughly $350 million more than it was when the two parties agreed to terms -- Coke also gains two seats on Monster's board of directors, and the two companies also agreed to swap beverage portfolios. Monster will take control of Coke's energy drink brands, and Coke will take over Monster's non-energy drink lineup, which is headlined by Hansen's Natural sodas, Peace teas, and Hubert's lemonades.
Now what: Monster, which began its corporate life as a specialty soda purveyor, is now a pure-play energy drink company. The deal also gives Monster a major distribution boost by making Coke its preferred global distribution partner, and since the SEC filing made sure to note that Monster's energy business will "more than double" in many international markets, you can be sure this deal was devised largely to break Red Bull's dominance abroad.
According to Caffeine Informer, Red Bull and Monster were neck-and-neck in domestic market share last year (with respective shares of 43% and 39%), but Red Bull's global sales of $10.9 billion were nearly three times Monster's for the same time frame. The same data shows that Coke's leading domestic energy-drink brands, NOS and Full Throttle, accounted for nearly $400 million in domestic sales last year, and its largest international brand, Burn, recorded roughly $700 million in global revenue. These three brands alone should boost Monster's top line by at least $500 million, since its non-energy portfolio accounted for $175 million in revenue last year.
This deal should remind The Motley Fool's Rule Breakers subscribers of a similar deal Coke made with Monster's fellow Rule Breakers pick Keurig Green Mountain (NASDAQ:GMCR) earlier this year, which involved a 10% stake (since boosted to 16%) for $1.25 billion and a branding partnership for Keurig's cold-beverage machine. Keurig's shares also rose more than 25% upon the initial Coke partnership news, and they remain 40% higher than they were the day before the deal was announced. However, not only is Coke's deal with Monster larger in percentage and valuation terms, but its distribution and brand-swap elements also represent more direct involvement between the world's largest beverage-maker and its partner than did the Keurig deal.
The Motley Fool recommends Coca-Cola, Keurig Green Mountain, and Monster Beverage. The Motley Fool owns shares of Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.