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Coca Cola makes high-energy Monster acquisition for $2.15B, or $77 per share

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Coca-Cola Co. (KO), the world’s largest beverage company, made a high-energy acquisition of Monster Beverage Corp. (MNST) for $2.15 billion, increasing Coca Cola's bet on the burgeoning energy-drink market. Coca Cola agreed to swap some brands and also bought a 16.7 percent stake in Monster. The deal is expected to close at the end of 2014 or the beginning of 2015. Coca-Cola will finance the transaction with cash on hand, reported Seeking Alpha today.

Coca Cola is constantly on the lookout for growth avenues to offset declining growth in its soda sales, which make up more than 70% of its revenue. Soda volumes grew a paltry 1% last quarter worldwide, and the flagship brand, Diet Coke, continues to turn out negative growth figures. Monster, on the other hand, posted a 9% increase in revenues in the last quarter. The energy-drink market is growing and the drinks are popular with millennials and show no signs of letting up.

This is a win-win for both companies. Monster has grown at an annualized rate of 26% in the international market in the last two years and Coca-Cola has one of the best global supply chains under its command. Monster should see an immediate spike, but the future of growth in the soft drink market is considered flat to downward.

Coca-Cola will transfer monster ownership of its worldwide energy brands which include the brands NOS, Full Throttle, Burn, Mother, Power Play, and Relentless. In return, Monster will transfer Coca-Cola ownership of Hansen's Natural Sodas, Peace Tea, Hubert's Lemonade, and Hansen's Juice Products. The deal will also make Coca-Cola Monster's preferred distribution partner worldwide, while Monster will become the exclusive energy play of Coca-Cola.

According to Bloomberg, Bonnie Herzog, an analyst with Wells Fargo & Co. in New York said, "Monster is relatively underpenetrated internationally," she said, adding that the company has 15 percent of the global energy-drink category, which is worth about $40 billion at retail. "This partnership will significantly accelerate Monster’s international market share."

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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