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Monster reportedly exploring merger with Corona-owner Constellation Brands

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Yahoo Finance Live's Brian Sozzi and Julie Hyman explore the potential of a merger between Monster Energy Drink and Constellation Brands, the latter possibly hoping to diversify their inventory of beverages.

Video Transcript

JULIE HYMAN: According to reports today, Monster Beverage is exploring a combination with Constellation Brands. Of course, Monster majority owned by Coca-Cola. Not clear that this deal is going to happen, but it is sort of intriguing to market participants this morning.

BRIAN SOZZI: And it should be noted right off the top, Coca-Cola declined to comment to Yahoo Finance on the speculation, same goes for Constellation Brands. But this is an interesting thing, let's just say. Because I have wondered for some time, what is Coca-Cola going to do with its stake in Monster. And they took this stake in 2014. It is now a 19.3% stake according to data off the Bloomberg Terminal here.

And there's been no clear plan, I would say, by Coca-Cola on what it will do. This is a transaction made under former Coca-Cola CEO Muhtar Kent, not made by James Quincey the current CEO of Coke by any stretch of the imagination here. And it is interesting, I'm not seeing any, really, Wall Street come out here and offer any quick takes and if this is good or bad.

But for Constellation Brands, I think this would diversify them obviously more into a category they're not in. I have seen some chatter on Twitter. Perhaps Constellation Brands goes and starts making energy drinks with alcohol in it. I don't think that would be the focus here off the bat. This is more, I suspect, just getting to know the Constellation team more than diversifying their business in a business that they are not in.

Now, a head-scratcher ultimately is Constellation Brands has their supplier network mostly in Mexico. So it's unclear how Monster and Constellation would fit in from that perspective. And then lastly too, any transaction by Constellation Brands would have to be approved by the Sands family. They control, voting, they have a majority voting stake in Constellation Brands. So they have to approve any transaction, especially for a deal that could be upwards of $50 billion,

JULIE HYMAN: Couple of reactions to that as well. The idea of putting energy drinks with alcohol, from what little I've seen this morning, regulators would not necessarily be amenable to that. They have not been in the past. And I've seen a little bit of analyst reaction-- one from Stifel's Mark Astrachan, who said that a joint venture would make more sense than an actual tie up. In this case, he as well as Ken Shea over at Bloomberg Intelligence saying, there really wouldn't be many synergies in this deal.

And so from that perspective also wouldn't necessarily make a lot of sense. So it seems like there seems to be some consensus on that point. And as you point out, if the distribution channels are different, that also raises some questions here.