Coke is buying a piece of a Monster.
As part of the deal, the two companies will swap some brands. Monster will acquire Coke's energy drink brands, including NOS, Full Throttle and Burn. Meanwhile, Coke will take on Monster's non-energy drink businesses, including Hansen’s Natural Sodas, Peace Tea and Hubert’s Lemonade.
Coke will also get two seats on Monster's board, and will have to get board approval from Monster to purchase more than 25% of the company.
So, what’s behind the deal between the world’s largest soda brand and the second largest energy drink brand?
Yahoo Finance Columnist Rick Newman said the deal feels late. "It feels like Coke is behind the curve on this one,” he said, citing the fact that analysts have been suggesting for some time that Coke should takeover Monster. In 2012, the companies were reportedly in talks for Coke to takeover Monster. Newman said that while Coke may have decided to follow the analysts’ advice, “I’m not sure this revitalizes Coke as much as Coke needs.”
“I think this is a little bit more immediately about the swap of brands,” said Yahoo Finance Senior Columnist Michael Santoli about the deal and the swapping of brands. He said Coca-Cola recognized it doesn’t have a good competitor in the very fast-growing energy drink market, and realized it has to have bigger exposure to that area. “That, to me, actually makes a lot of sense,” Santoli said.
Yahoo Finance Editor-in-Chief Aaron Task said the deal is about diversification for Coca-Cola to generate some growth, especially in North America. He said the company did something similar by acquiring a 16% stake in Keurig Green Mountain (GMCR). “I don’t want to say they’re throwing something at the wall to see what sticks, but they are trying to pull a lot of different levers to try to generate some kind of growth.”
Santoli added that buying a stake in Monster was about Coke testing the waters. He said the stake is a $2 billion investment for a company that has a market capitalization of about $176 billion. “They’re trying, with a small manageable amount of capital, to see if this is an area they want to play bigger in.”
“And maybe the reason they don’t buy the company is because we don’t know if this is a long-term answer,” Santoli said.