Will Coca-Cola Jump In With A Bid For Monster Ahead Of Constellation Brands?

Could an alcoholic beverage company and energy drink company team up to create a more diversified beverage play for investors? That’s exactly what could be happening according to a report.

What Happened: Energy drink company Monster Beverage Corp MNST is in talks for a deal with alcoholic beverage company Constellation Brands STZ, according to a report from Bloomberg.

Monster discussed a potential deal with advisers according to the report, although it is unclear if the companies would merge or assets would be sold. Both companies have similar market capitalizations of around $45 billion.

Constellation Brands has been active on the acquisition front in recent years adding beers and liquor brands to its portfolio. The company also acquired a 40% stake in cannabis company Canopy Growth Corp CGC.

Canopy sells drinks with THC in Canada and plans to enter the U.S. space with the drinks when federally legalized.

Regulators could block a deal with concerns over an alcoholic beverage company and an energy drink company with the combination of alcohol and caffeine not well received by the FDA.

Related Link: After Failed Coke Energy Launch, Could The Company Go All In With Monster Acquisition 

Why It’s Important: Beverage giant Coca-Cola Co KO owns 19% of Monster Beverage and helps distribute the brand. Coke has often been mentioned as a potential acquirer.

A deal between Monster and Constellation could face roadblocks due to the Coca-Cola ownership stake.

Coke discontinued its Coke Energy brand earlier this year, which could lead the company to focus more on an increased partnership or buyout with Monster Beverage.

Coke’s rival, PepsiCo, Inc. PEP, acquired Rockstar Energy and landed a marketing deal with LeBron James to be the spokesperson, luring him away from Coca-Cola.

Coke Energy had only a 0.7% market share for the energy drink market in 2020, compared to 25% for Red Bull and 15% for Monster.

To stay competitive in the energy drink space, Coca-Cola will likely be actively following the Monster and Constellation rumors and could form a bid of its own to make sure they maintain control.

Coke and Monster battled in 2019 over the launch of the Coke Energy brand, which could make talks a little more heated than in the past.

Coca-Cola recently paid $5.6 billion to acquire the remaining stake in BodyArmor it did not own. The move could make a purchase of Monster Beverage less likely in the short term, given the large purchase price.

MNST Price Action: Monster Beverage shares trade at $88.62 at market close Tuesday, towards the lower half of their 52-week range of $82.96 to $99.89.

Photo by Christian Wiediger on Unsplash