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Monster Stock Jumps Late As Coke Buys 16.7% Stake

Coca-Cola made its second caffeine-rich strategic alliance this year, announcing a big stake late Thursday in Monster Beverage, sending the energy drink maker's shares soaring to record highs.

Coke (KO) will pay $2.15 billion for a 16.7% stake in Monster Beverage (MNST) and two seats on the energy drink specialist's board. Coke will give its energy drink brands like Full Throttle and NOS to Monster, which will transfer its non-energy drinks like Hansen's Natural sodas and juice to Coke.

"Our equity investment in Monster is a capital efficient way to bolster our participation in the fast-growing and attractive global energy drinks category," Coke CEO Muhtar Kent said in a release.

Coke has an option to increase the stake to 25%.

Monster shares shot up 22% to 87.25 in after-hours trading. Coke rose about 1%.

The deal is expected to close later this year or early 2015.

The companies expanded their distribution deal so Monster is Coke's exclusive energy partner. Coke says it will help "accelerate" Monster's sales abroad.

"Our agreement enables us to focus on our core energy business, while leveraging the strength of the Coca-Cola Company's powerful distribution and bottling system on a worldwide scale," said Monster President Hilton Schlosberg in a release.

In Q2, Monster debuted the Valentino Rossi summer drink for Europe and South Africa as it looks to continue its expansion abroad. But it faces a tough rival in Austria's Red Bull.

Buyout Buzz For Years

Since their first distribution deal in October 2008, rumors circulated that Coke would eventually buy part or all of Monster.

Coca-Cola has been trying to diversify from fizzy drinks. Soda consumption has been on the downturn in the U.S. for the past decade. Even demand for diet drinks is falling, despite the rise of diet drinks like Coke Zero and Dr Pepper Snapple's (DPS) Dr Pepper Ten aimed at men. Coke blamed flat North American vol ume growth last quarter on weakness in demand for Diet Coke.

But energy drinks have been a fast-growing niche. Monster's sales rose 9% in 2013 after gains of 21% in 2012 and 31% in 2011.

Even during the economic downturn, Americans were still willing to spend money on small splurges like beverages, just not soda. Coffee and teas have done better than soft drinks in recent years as Americans desire more caffeine but less sugar.

Hot On Keurig Cold

In February, Coke announced that it is teaming up with Keurig Green Mountain (GMCR) to market a Keurig cold-beverage maker. The device is expected to debut in fiscal 2015, which starts in September. Coke upped its stake in Keurig to 16% in May, making it the largest shareholder.

Earlier Thursday, Keurig said it was rasing its K-cup prices as much as 9%, citing continued cost increases for green coffee and cocoa. Green coffee prices in the past year have risen nearly 55%.

Keurig shares were little changed in after-hours trading.

But SodaStream (SODA) — which may come under pressure from the Keurig Cold machine — rose 3% late. In July, the Israeli in-home carbonated beverage maker was in talks with an investment firm about going private, according to a Bloomberg report .

In June, Starbucks (SBUX) debuted Fizzio drinks, its own line of hand-crafted natural sodas that the company says have no artificial flavors, preservatives or high-fructose corn syrup.