Is Hansen Natural a Takeover Target?

One of the favorite targets of takeover rumors in the past year has been Hansen Natural Corporation (HANS). In June of 2006 we heard rumors that Adam Harkness said there was a strong possibility that Coca Cola (KO) would make a bid for HANS at a 50% premium.

Takeover rumors again began to circulate in September of 2006 when OPCO said that HANS would get bought out soon. In December rumors of a leveraged buyout circulated.

Since May of 2007 rumors have run rampant that Anheuser-Busch Companies Inc (BUD) or Pepsico Inc (PEP) are interested in buying out Hansen.

Hansen Natural Corporation (HANS)

With a market cap of just under $4B, Hansen's valuation has climbed substantially since September. Earnings have steadily grown over the last several years, and estimates are that they will keep growing in revenues. HANS currently has a P/E ratio of about 45, which is more than double the P/E of many companies in the same industry.

HANS is itself a very divisive stock, and in between takeover rumors on the company there have been other negative commentary and rumors.

On July 9, 2007 Goldman Sachs was rumored to have suggested that a bidding war could occur for HANS and that it would exceed $60 per share. The same day, however, Goldman Sachs came out and officially denied the takeover comments.

So while the company is growing and speculation has run rampant, there is certainly a section of the market that believes HANS is not a takeover target and is overpriced.

While Hansen offers a variety of drinks, its main source of revenue is its energy drink Monster. Monster is currently the number 2 brand in energy drinks, owning approximately 15.3% of the market share of all energy drinks (14.4% for Monster and .9% for Monster XXL energy drink market share for the year ending December 31, 2006). Number one in energy drinks, and Hansen's biggest competitor, Red Bull, controls 42.6% of the market share for energy drinks. In 2004 Red Bull controlled 68.4% of the market share while Monster controlled only 4.6% (energy drink market share as of July 11, 2004) and was fifth in market share. Monster's market share has taken off, at the expense of Red Bull, Pepsi and Coca-Cola.

A Leveraged Buyout Is Less Likely [LBO]

While we feel that HANS would be a good takeover target for a larger company, we doubt that a leveraged buyout will occur. Hansen currently has $330M in current assets or 8% of its market cap. Free cash flow for Hansen is comparatively small at less than 1% of its market cap. In other words, it would be quite a stretch for private equity to get the funding necessary for a leveraged buyout. However, Hansen is growing, and their significant growth would definitely be attractive to private equity.

While it is possible that HANS could receive a bid from private equity, we feel that it is much less likely than the chance it will receive a bid from a larger company.

Disclosure: none