The Coca Cola Company is upping its caffeine quotient, acquiriing a 16.7% stake in Monster Beverage for $2.15 billion.
Monster is the largest manufacturer of energy drinks in the U.S., and uniting with the nation’s largest soft drink supplier is an agreement in which analysts see numerous benefits, for both sides. Monster stock rose 22% on the news, to $87.65, while Coke ticked up 1.4% to $40.76.
Under the agreement Coke will absorb Monster’s non-caffeinated beverages (Hansen’s Natural Sodas, Hansen’s Juice, Peace Tea and Hubert’s Lemonade) while Coke will transfer its energy drinks (Burn, Full Throttle, Mother, NOS, Play, Power Play and Relentless) to Monster.
Coke and Monster reportedly initiated pact talks in 2012, but were unable to complete an agreement.
The current move is seen as an effort to diversify at a time when soda purchases have been slowing. In 2013 carbonated drink sales fell 3%, the ninth consecutive year of decline, according to Beverage Digest, which reported that Coca Cola nonehtless managed to increase market share during the same period. During that time, energy drinks rose by nearly 7%, according to analytics firm Symphony IRI, which reported that Monster’s revenue rose 7.7%, outperforming the category.
Depending on whose list one is consulting and when, Monster is either the No. 1 or No. 2 energy drink supplier in the U.S., sharing the top slot with Red Bull. Coke’s main competitor, PepsiCo, owns the Rockstar, the No. 3 energy brand.
Coke can purchase shares of up to 25% of Monster over the next four years, but needs the company’s premission to seek further investment during that timeframe.