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Coke says not in talks to buy Monster Beverage

04/30/2012 | 07:56pm US/Eastern
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(Reuters) - Coca-Cola Co took the unusual step of shooting down a report on Monday that said it was in talks to buy energy drink maker Monster Beverage Corp, valued at more than $11 billion.

The statement from the world's largest soft drink maker came in response to a story in the Wall Street Journal that said Coke was in discussions to buy the fast growing energy drink maker, whose brands include Monster Energy and Java Monster.

Coke and Monster had discussed a possible deal as recently as last year, according to two sources familiar with the matter. However, it is unclear whether the two have been in talks since then.

The Journal's report that the two companies were in current talks, posted on its website Monday, sent Monster's stock up 28 percent to $83.96, an all-time high. Coke later issued a statement disputing the report, and Monster stock fell, closing down 1 percent.

"At this time, we are not in discussions to acquire the Monster Beverage Corp," Coke said in its statement. "We continue to review the best ways to maximize the value of our relationship."

Should it happen, an acquisition would give Coke a bigger footprint in the energy drink market, which is growing faster than traditional soft drinks. Coke's own energy drink, Full Throttle, is small compared with Monster and rivals Red Bull and Rockstar.

"We think Monster is an attractive takeout candidate given it is the fastest-growing brand in one of the fastest-growing global beverage categories," said Stifel Nicolaus analyst Mark Astrachan.

UBS analyst Kaumil Gajrawala estimated a fair takeout offer for Monster would range from $84 to $100 per share. Based on the number of shares outstanding as of February 24, that multiple implies a deal value ranging from $14.6 billion to $17.4 billion.

Coke already distributes a large portion of Monster's drinks in the United States and in some international markets. Monster has a similar distribution deal with Anheuser-Busch InBev.

In its statement, Coke said the two companies were looking at ways to wring more profit out of their existing relationship. That could include placing Monster in more retail locations, doing additional co-marketing with other Coke brands, or working together to market new products, according to Ken Harris, chief executive of Kantar Retail Americas Consulting.

However, the dueling statements on a possible acquisition left some doubt about whether a deal might be in the works.

Following Coke's denial of acquisition talks, the Wall Street Journal updated its story to say the companies had been in talks recently and that Coke pulled out after the Journal report was published.

A Coke spokesman denied that claim.

A Monster spokeswoman said the company does not comment on market speculation.

INTERNATIONAL OPPORTUNITY

Monster Beverage, earlier known as Hansen Natural, was taken public by current CEO Rodney Sacks in 1992. Sacks, now in his 60s, still has a 7.3 percent stake in the company, according to Thomson Reuters data.

Speculation about whether Coca-Cola would buy Monster has surfaced in the past due to Monster's growth, the companies' distribution relationship, and the fact that Coke does not have a very strong-selling energy drink.

Last year, Monster's sales rose by nearly a third to $1.70 billion. Sales are seen rising a further 21 percent this year.

For Monster, getting bought by Coca-Cola would greatly expand its presence, since it would have access to Coke's sizable international distribution system. For Coke, buying Monster would give it the full profit stream from the product.

Analysts have said buying Monster would give Coke a good brand in North America, where sales of traditional soft drinks have been weak, as well as a good product to sell overseas.

Monster's shares nearly doubled over the past year. As of Friday's close, the company's market capitalization was about $11.4 billion based on the latest number of share outstanding.

Monster shares closed down 0.8 percent at $65. Coke shares closed down 0.4 percent at $76.32 on the New York Stock Exchange.

(Reporting by Martinne Geller, Michael Erman and Soyoung Kim in New York and Mihir Dalal in Bangalore; Editing by Alwyn Scott, Phil Berlowitz, Bob Burgdorfer and Bernard Orr)

By Martinne Geller and Michael Erman

Stocks treated in this article : AB INBEV, BEAM Inc, The Coca-Cola Company, Monster Beverage Corp
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