By now you've likely heard that Coca-Cola (NYSE:KO) is coughing up $2.15 billion for a nearly 17% stake in energy drink maker Monster Beverage (NASDAQ:MNST). The news sent both stocks higher last week, with Monster climbing more than 30% to trade around $93 a share on Friday. While the deal creates a unique opportunity for both Coca-Cola and Monster, it also comes with some added risk. Let's take a closer look to uncover the good, the bad, and the ugly of the soda giant's latest transaction.

Source: The Motley Fool.

Opportunities abound
Faced with slowing sales of soda in the U.S., Coke is looking to fast-growing beverage categories such as single-serve and energy libations for future growth. The energy drink market reportedly grew 4% in 2013, compared to a 3% decline in carbonated beverage sales over the same period, according to an article in Adweek..

Therefore, what better way to spark growth than by taking a stake in Monster, which, according to Euromonitor data compiled by The Wall Street Journal, currently controls roughly 35% of the $9 billion U.S. energy drink market? Under the terms of the agreement, Coke will have the option to increase its stake to 25% over the next four years.

Of course, Monster also stands to benefit from the deal. If there is one thing that Monster lacks it is international exposure -- something that Coke has an abundance of. In fact, Monster currently generates less than 25% of its sales outside of the United States, according to The Wall Street Journal. However, the company could nearly double its sales going forward with access to Coke's massive global distribution network, according to the Journal, which cites research firm Sanford C. Bernstein. . 

The global energy drink market is expected to grow at a compound annual growth rate of roughly 13.38% between 2013 and 2018, according to data from Research and Markets cited by Reuters.  For comparison, the global soft drink market is expected to grow just 4.3% between 2012 and 2017, according to research from Data Monitor. Going forward, Monster could leverage Coke's massive distribution network to expand its market share worldwide in this fast-growing beverage category. Coca-Cola, after all, boasts the world's largest beverage distribution system, which reaches customers in more than 200 countries today. Additionally, Coke sold a record 28.2 billion unit cases of its beverages last year through this distribution network . 

As part of the deal, Coke will put its energy drink brands including Full Throttle under Monster's control, whereas Monster will give its non-energy segment drinks such as Hansen's Natural Sodas to Coca-Cola.

The bad and the ugly
Given its strong balance sheet, Coke could have easily purchased Monster Beverage outright. However, the ugly truth is that doing so would have made Coke significantly more vulnerable to Monster's controversial products. The move also shields Coca-Cola's warm and fuzzy polar-bear-adorned brand image from being tarnished by Monster's brash branding.

Energy drinks have come under heavy scrutiny in recent years because of health concerns. The Food and Drug Administration launched an investigation in 2012 looking into five deaths that were reportedly linked to Monster Beverage. The FDA later said it found no problems with two primary additives, taurine and guarana, found in Monster drinks. However, the FDA said it has not reached any final decisions and is still investigating the health risks of energy drinks. This could lead to increased regulations on the sale of energy drinks down the road.

Yet, by simply owning a stake in Monster Beverage, Coke is able to take on less risk in this controversial drink category. The important distinction here is that Coke will now be distributing energy drinks but won't actually own them. Moreover, this arrangement gives Coke an opportunity to accelerate growth in the $9 billion domestic energy drink market without taking on all of the risk. "The Coca-Cola Company will become Monster's preferred distribution partner globally and Monster will become the Coca-Cola Company's exclusive energy play," according to a company press release. 

This strategy has worked well for Coca-Cola lately. If you remember, the king of pop also took baby steps when investing in Honest Tea and later Zico coconut water. Coke took a 40% stake in Honest Tea in 2008 before buying the remaining stake in 2011. The company followed a similar path with its calculated buyout of Zico in 2012.

Ultimately, taking a small stake in Monster with the option of adding to that position in the future is Coke's safest bet given the dark side of energy drink perception in the U.S. today.