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Morgan Stanley Ponders Coca-Cola Buying Stake In Monster Beverage

Dwight Einhorn

In a report published Friday, Morgan Stanley analyst Dara Mohsenian reiterated an Equal-Weight rating on Monster Beverage (NASDAQ: MNST).

In the report, Morgan Stanley noted, “KO announced plans to acquire a 16.7% stake in MNST (on the media call Coke indicated it has an option to increase its stake to 25% with a four-year standstill above the 25% level) – and will appoint two directors to Monster's board.

"Under the terms: (1) KO will receive a 16.7% post-deal stake as MNST issues shares, (2) MNST will receive a net cash payment of $2.15B, (3) KO will transfer its global energy portfolio, including Burn, NOS and Full Throttle, to MNST, which is a concentrate business, (4) MNST will transfer its non-energy business to KO, which is much smaller in size than Coke's energy portfolio, and (5) MNST will enter into expanded distribution agreements with the Coke system.

"KO and MNST will expand their current US/Canada distribution, with the KO system becoming MNST's preferred distribution partner globally. The companies expect the transaction to close in late CY14 to early CY15 and Coke will use equity method accounting. These are our initial thoughts, with pending detail on the Friday AM conference call.”

Monster Beverage closed on Thursday at $71.65.

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