What happened
Shares of Monster Beverage (MNST 0.71%) traded 6% lower at noon, EDT, as soda-and-snacks giant PepsiCo (PEP +2.49%) announced a $3.85 billion acquisition in the energy drink sector.
So what
Pepsi is tapping into the rapidly growing energy drink market with a buyout of long-established energy brand Rockstar Energy Beverages. Pepsi aims to accelerate Rockstar's growth through its global distribution network and massive marketing assets, and may also fold some of Rockstar's energy drink innovations into Pepsi's own brands, such as Mountain Dew. The deal is expected to close in the first half of 2020 but won't make a material impact on Pepsi's financial results until next year.
Monster's investors shuddered at the thought of another well-heeled rival entering the energy drink market.
Image source: Getty Images.
Now what
This isn't the first time Pepsi has dipped a toe in the energy drink waters, but earlier attempts have gone largely unnoticed. Grabbing Rockstar's 5.5% share of the American market is a more serious attempt.
At the same time, Pepsi's splashy entrance might motivate Monster partner Coca-Cola (KO +0.74%) to simply acquire the leading energy drink company. Coke already holds a 19% stake in Monster and has been managing the company's distribution network since 2008. Taking the next step with a complete buyout wouldn't be much of a surprise, and Pepsi's presence just might be the last straw that triggers that transaction.
That's all speculation, of course. What we have today is a more powerful infrastructure behind a reasonably successful rival, and the negative market reaction makes sense from that perspective. I would still argue that long-term investors should take a closer look at Monster at a lower buy-in price, especially if they're expecting a takeover by Coca-Cola someday soon.
