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Coke chooses caution, sees too much risk in swallowing all of Monster

  • So why didn't Coca-Cola (NYSE:KO) just go all the way and acquire all of Monster Beverage (NASDAQ:MNST) instead of stopping at an asset swap and a 16.7% stake?
  • More than anything, "it's about protecting the [Coke] brand and the image" from a company that urges consumers to "unleash the beast" with drinks such as Assault and Khaos, said a person close to Coke.
  • Coke figures it deals with enough controversy from those who blame sugary sodas for obesity and diabetes; it wants to keep at arm's length from the more serious public relations battles facing the energy drinks industry, including an FDA probe over deaths possibly linked to Monster.
  • On the financial side, the deal involves a reasonable $2.1B cash up front, while a full acquisition would have required at least $12B based on Thursday's closing stock price - roughly equivalent to the amount of cash Coke had on hand at the end of July.
  • Despite the cautious approach, Coke could still own Monster some day; a standstill agreement limits KO to increasing its stake to 25% over four years, but MNST's board can waive it at any time.
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Comments (43)
  • Timberwolf Equity Research
    , contributor
    Comments (199) | Send Message
     
    yeah they must be really uncomfortable selling sugary caffeinated drinks...
    16 Aug, 08:44 AM Reply Like
  • mister-ugly
    , contributor
    Comments (177) | Send Message
     
    My belief you only see one side of the story which is obvious since overwhelming sales of MNST are the "Energy Drinks;" maybe KO saw something in the "Original" product line of the small company from California (Hansen's Organic Soda). News released stated KO got control of the Organic Soda's. That put REED in play since they are the largest in distribution & revenue of Organic Soda. Chris Reed may not be liked, however he has stated all along his goal is to build up REED an Organic Beverage Company, Gluten Free, and Kosher Certified and sell. KO did REED a favor and maybe the money losing JSDA also. While Analyst pour over 10Q's from GMCR and SODA they are missing out! That is why this site lets free thinkers write.
    16 Aug, 09:11 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    Keep dreaming and hold on to REED stock if you think one of the reasons KO bought MNST was because of the organic drink.
    16 Aug, 10:02 AM Reply Like
  • King Rat
    , contributor
    Comments (715) | Send Message
     
    Absolutely, mister-ugly, yes, this site is for free thinkers.

     

    That is my problem with people like Mr. Reed who join the trendy "gluten free" bandwagon. They prey on the trend-followers, the coattail-riders, the fashion victims, and those like them. Most cola/pop/soda is already kosher and gluten free anyway as people with c(o)eliac disease and orthodox Jews already know. Advertising those features is merely a form of pandering to that crowd trying so hard to fit in socially that they would buy sugar water in order to appear health conscious just because the sugar water has the buzz words on its label, "Organic and Gluten Free Now With Unpronounceable Chinese Herbs Inside". Diabetics of the world, relax, this bottle of 30-40g of sugar is safe to drink because it has no wheat protein inside!

     

    Free thinkers indeed. They buy cheap bridges one bottle at a time.
    17 Aug, 04:57 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    $12.87 billion for (NASDAQ:GMCR), according to my calculations.

     

    As for (OTCQB:JSDA), price/sales is 1. With a market cap of $13 million, it wouldn't be hard for (NYSE:KO) to buy (OTCQB:JSDA).
    16 Aug, 09:38 AM Reply Like
  • lifeS*X
    , contributor
    Comments (106) | Send Message
     
    Apparently this bits comes off articles from the WSJ which needs subscription to be read.

     

    I highly doubt that a "a person close to COKE" would state that they are uncomfortable with KHAOS and ASSAULT drink names. This is so weird to reduce a company to that. What about the BURN name KO produces. Would that be an incentive to get pyromaniac ?

     

    The argument of being cautious seems irrelevant.

     

    As even with a fifth or a quarter of the company in KO's pocket, if MNST is having problems, it will impact KO.

     

    APRIL 2012 : they could have bought the whole company at 85$ but thought it was too much.

     

    AUGUST 2014 : they buy a 17% stake (and will exercise the rights to get the 25%) and now the company trades well above the 90$ mark.

     

    If they were so cautious, why did they get into it at much bigger price than they would have in 2012 ? Should they buy the remaining 80%, it ll come anyway at a much higher price than 85$.

     

    KO longs say that KO is the winner in this deal. By getting the products that provide not even 10% of MNST's revenues... Not quite sure KO is the winner.

     

    BUT let's see where we are by end of 2014 in the evolution of this partnership.
    16 Aug, 09:59 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    Which is exactly why KO is stagnant company when they think like this. You think alcohol and liquor companies think this way? You think McDonalds or GM think of there products like this? Classic example of a bunch of old out of touch executives running the company who are in touch with Wall Street but not consumers. Looking forward the best thing KO can do is make Rodney Sacks the next CEO of this company because he is greatly needed.
    16 Aug, 10:00 AM Reply Like
  • chopchop0
    , contributor
    Comments (3439) | Send Message
     
    yup. KO is the perfect example of when you can't innovate, go out and try to buy something to make it look like you can.
    16 Aug, 02:55 PM Reply Like
  • purpleboarder
    , contributor
    Comments (275) | Send Message
     
    That's the beauty of KO. If they aren't the first to market w/ a 'disruptor' or market-growing beverage, they'll imitate it, or buy it outright. So KO aren't innovators. Who the hell cares? As long as they react and adapt, and keep that 8-10% dividend growth going for another 40 years, I couldn't care less if they don't 'innovate'....

     

    Many people forget that KO has been diversifying away from caffeinated beverages for the past 20-30 years. If they were stagnant, they wouldn't have 150+ beverages that include juices (MinuteMaid), water, energy drinks, health-water, etc....

     

    Q: Who's going to challenge KO's worldwide distribution infrastructure?
    A: N-O-B-O-D-Y

     

    I like those odds going into the future, being the 'stagnant' company that it is.
    17 Aug, 10:55 AM Reply Like
  • chopchop0
    , contributor
    Comments (3439) | Send Message
     
    "Q: Who's going to challenge KO's worldwide distribution infrastructure?
    A: N-O-B-O-D-Y"

     

    All the infrastructure in the world won't help a secular decline in interest in your core products. Cereal companies are feeling the heat too (K, POST etc)
    17 Aug, 01:59 PM Reply Like
  • 7iron10
    , contributor
    Comments (44) | Send Message
     
    Which is why cereal companies (NYSE:GIS) are diversifying into on-the-go snacks and yogurt (the latter proving more growth than the former).
    17 Aug, 04:36 PM Reply Like
  • purpleboarder
    , contributor
    Comments (275) | Send Message
     
    ..."All the infrastructure in the world won't help a secular decline in interest in your core products." (in the US market)...

     

    Wait till KO takes off in places like India, Brazil, BRICs, etc. The party is just getting started. Did you take this into consideration? Further diversification from the caffeinated 'core' products, increasing the distribution infrastructure, increasing exposure to fast-growth countries whose middle-class is starting to explode. Yeah, let's write off KO.. PFFT.
    17 Aug, 07:38 PM Reply Like
  • chopchop0
    , contributor
    Comments (3439) | Send Message
     
    "Wait till KO takes off in places like India, Brazil, BRICs, etc"

     

    KO has been in developing countries for several years. It's not like these are brand news markets for them. The growth is piddling single-digits at best.

     

    I've said it before, and I'll say it again, KO has been one dog of a blue chip coming out of the recession, and even since the turn of the century. DIS JNJ V BA NKE etc have all been much better places to be for several years now.
    17 Aug, 09:08 PM Reply Like
  • dectra
    , contributor
    Comments (415) | Send Message
     
    I've got no problem with them buying Monster; I am happy they're broadening their income base. It has nothing to do with failing to 'innovate'
    18 Aug, 07:49 AM Reply Like
  • purpleboarder
    , contributor
    Comments (275) | Send Message
     
    ...."KO has been one dog of a blue chip coming out of the recession, and even since the turn of the century."....

     

    Huh? Were you talking about the 2-fer stock split a couple of years ago? KO, like many other money-minting blue chips, had insane P/E ratios after the "dot-bomb" run up to 2000. So with a P/E ratio in the 30-50s range, of course stock price didn't grow, as earnings were "growing into" the stock price over the last 10+ years. What a disingenuous statement.

     

    But of course you seem to forget that the dividend doubled, then doubled again since 2000, giving you a yield between 10-12%. I'll take that dog of a stock every day of the week, and twice on Sunday. For the record, big fan of V and DIS as well.....
    18 Aug, 07:45 PM Reply Like
  • PalmDesertRat
    , contributor
    Comments (2821) | Send Message
     
    It's also possible that MNST management didn't want to sell out completely. Maybe they figure they can make more money for themselves by staying apart from KO and earning bonusses and stock on their own business which, after all, is growing faster than KO.

     

    It's very likely that MNST was in discussions with PEP and others. They were in a seller's market so struck the best deal they could get, which was KO. Maybe shows that KO is more desperate than PEP.

     

    This is the second time in recent months that KO has done this. Previously with GMCR. To me it's a sign of trouble with KO's upper management.
    16 Aug, 10:03 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    Or.............(NYSE:KO) is waiting to get a better price for (NASDAQ:MNST).
    16 Aug, 10:10 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    As a shareholder since 2005 I was happy to see this happen. KO has 50% of the distributorship and worried if there was ever a fallout how disruptive that would be in MNST getting the products out. I'm still waiting to hear what MNST is going to do with this $2 billion in cash! I'm thinking a dividend is highly likely starting next year.
    16 Aug, 10:26 AM Reply Like
  • PalmDesertRat
    , contributor
    Comments (2821) | Send Message
     
    To the extent that MNST's share price included a takeover premium, that is now gone. They are no longer a target. It's like having a company that is controlled by a family.
    16 Aug, 11:37 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    They only company that would have purchased MNST would've been BUD. So it's not like the "premium" was so high that many expected a bidding war.
    17 Aug, 12:07 PM Reply Like
  • lifeS*X
    , contributor
    Comments (106) | Send Message
     
    M. BRYANT : do u think that in 12/24 months, share price of MNST will be less than it is now ? If so, what would be the reasons such thing would happen ?

     

    Some ppl mentioned GMCR deal.

     

    When you look at the earnings report provided by GMCR post FEB014 announcement, the growth of the company in its core business (coffee KCUP) has faltered and basically, without the KO deal, it is safe to say that the stock would trade around 60/70$ (and not 115 currently down from 130 all time highs --- BTW when the news broke out, GMCR shot up to 60% after hours while the next day on regular trade it ended up about 23% higher while MNST stuck steadily ending up a bit more than 1$ off its all time highs on FRIDAY 15th of august).

     

    Truth is : GMCR desperately needed this deal which still has to provide any kind of growth that would justify its lofty valuation. GMCR announced so many things in over 12 months but so far nothing happened (remember the CAMPBELL soup partnership - when is it supposed to materialize ?) The launch of the new hardware that will have hot and cold drinks is supposed to launch in 6/9 months...

     

    That is where the parallell between GMCR and MNST stops.

     

    All fingers seem to point out that the one who needed this deal is KO as MNST 's sales growth has not shown any signs of faltering. Quite the opposite.

     

    So the problem with MNST : FDA investigations and multiple lawsuits saying that MNST drinks caused the death of 5/6 persons.

     

    It is true it is a problem. Anything can happen. We'll see.
    16 Aug, 10:49 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    "So the problem with MNST : FDA investigations and multiple lawsuits saying that MNST drinks caused the death of 5/6 persons."

     

    That's why (NASDAQ:MNST) might get lower. And don't think that more bad news may pop up.
    16 Aug, 12:51 PM Reply Like
  • lifeS*X
    , contributor
    Comments (106) | Send Message
     
    It is a problem on paper NOT anywhere else. Should the FDA move towards caffeine content in energy drinks : will impact ALL drinks with caffeine in other words ALL big US brands (KO POP SBUX and so on... ) -- I am sure the FDA would have moved much earlier if that was such a big problem.

     

    Proving that 6 ppl died on MNST drinks consumption seem very difficult when other millions are doing just fine.

     

    So to me the problem is factored in already and there is no reason to believe it could harm MSNT.

     

    I assume you wish it would go lower as u re in a short play.

     

    May the best win ;-)
    16 Aug, 06:37 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    I list the stocks I have. I do not believe in shorting.

     

    Yes, those problems on paper don't seem to and probably won't hurt (NASDAQ:MNST) much. But the stock is a different story. Remember, the stock market is not rational. Remember the (NYSE:TM) brake problem. Turned out it was not a problem at all, just a psychology problem. (TM) stock dipped, but not many years later, it is back. (MNST) stock will probably pull back if another person complains or the FDA does something, but the pull back will be short lived.
    16 Aug, 11:17 PM Reply Like
  • lifeS*X
    , contributor
    Comments (106) | Send Message
     
    Bonjour Michael,

     

    Forgive me but i have no souvenir about Toyota brakes problems and how it impacted the stock. Si i'd rather not make any parallel going forward.

     

    But as u may guess, i know very well the roller coaster ride MNST's stock embarked in the mid fall of 2012. I think it fell below 40$ at its lows following massive plunge due to both FDA investigation and lawsuits regarding deaths related to monster drinks.

     

    I wonder how many people on a daily basis drink MNST drinks and have any kind of cardiac/heart problems ?

     

    AND i also wonder how many people on a daily basis do have (fatal or non-fatal) heart problems following consumption of one or more cup of coffee ?

     

    I am sure that the (coffee consumption) number are by far much bigger than the MNST drinks. But if it happens to ppl whom are at risks of such problems, who is going to point out the coffee as the cause of the problem.

     

    Therefore to me the FDA is in a tough position in regard to isolate the MNST drinks as a problem versus the rest of products with caffeine. They could MAYBE suggest a label warning but that would be probably very limited or suggest to adapt the range of caffeine percentage (mild/reg/strong).

     

    KNEE JERK reaction is pretty much what could happen in regard of rulings but as you say it'll be short lived.
    17 Aug, 02:57 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    Psssssssssssss, it is NOT the caffeine that is the problem. The girl who died had three (NASDAQ:MNST) cans in less than 18 hours. The warning label on the can I bought a year ago specifically said to NOT drink more than 3 cans in 24 hours. So..........who's fault is it?

     

    And the bigger problem I see is that Monster, Red Bull, and 5 Hour Energy all have the same chemical that is know to be carcinogenic if in high concentrations. Monster seemed to suffer first, because of its big cans, but who's next?
    19 Aug, 09:34 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1277) | Send Message
     
    Wow you mean to tell us that this drink has a warning label on how many you can drink within a period of time?

     

    Yes the monster cans seem rather large and full of bad stuff for an unhealthy lifestyle if you are drinking more than one of those a day.

     

    Given Coke's attempt at trying to become more health conscious? this monster acquisition seems to go against that grain.
    20 Aug, 12:20 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    They have bought other drinks. Vitamin water and YES MNST does have health drinks along with Muscle Monster. Just take a look at MNST portfolio of drinks.
    20 Aug, 10:04 AM Reply Like
  • lifeS*X
    , contributor
    Comments (106) | Send Message
     
    As for what will MNST do with its 2B$ and some.... NO DIVIDENDS : no thanks. That is much better use with buybacks though shares are quite expensive.

     

    It is a growth company and therefore needs to use this money to grow. It is not a value company so therefore no need to pay dividend.

     

    I am sure mr R SACKS will be smart enough to find ways to get the company growing (and therefore rewarding shareholders).
    16 Aug, 10:54 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    It's growth is slowing and the capex is now more or less in coordination with KO about distribution and bottling. I can't find it anywhere financially that says only value companies pay dividends. MNST now has so much cash and it's not like they have a billion shares outstanding so going to a dividend is highly likely given this deal. What I don't want to happen is for them to pay a special dividend.
    16 Aug, 11:34 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    Expansion, expansion, expansion. Have (NASDAQ:MNST) tied green tea and red bean flavored drinks to appeal to Asians? Soy?
    16 Aug, 12:54 PM Reply Like
  • yblarrr
    , contributor
    Comments (903) | Send Message
     
    KO is so right to be cautious,because sooner or later the "hi energy" drinks
    will be exposed to the scam that they are.
    16 Aug, 10:59 AM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    Yes I mean what does 20 years of energy drinks mean other than being a scam. pfft.
    16 Aug, 11:29 AM Reply Like
  • poortorich
    , contributor
    Comments (2263) | Send Message
     
    Having closely followed both Ko and MNST and being a shareholder of both I do believe that Ko wanted all of MNST. The management could say all they want about wanting to distance themselves from MNST's image. This sounds quite ridicoulous when they've just purchased 17% with the option to buy more.

     

    Here are my prediction over the next several years
    1) the earnings Ko gets from the brands acquired from MNST will be substantially lower tham the earnings MNST will get from the KO highway
    2) you will see an marked acceleration in MNST growth internationally. They will now be using the autobahn. MNST had a hard time expanding internationally not because of lack of demand but because of distribution problems
    3)within 10 years, if and when Rodney retires, you will hear an announcement that Ko will buy the rest of MNST at a higher premium.
    4)Pep will look into buying Rock Star, perhaps even Soda. They have to if they want to stay relevant in this duopoly. Red Bull is privately held. I doubt the family wants to be acquired.
    16 Aug, 12:05 PM Reply Like
  • 15231152
    , contributor
    Comment (1) | Send Message
     
    It would be a killer MONSTER, if MNST falls to 65$!
    16 Aug, 12:53 PM Reply Like
  • Jason Merriam
    , contributor
    Comments (801) | Send Message
     
    KO has been evolving its mandate of procuring assets capable of adding support anywhere in the supply chain. Instead of the transaction driving the endgame, the operating objective drives the endgame.
    16 Aug, 01:03 PM Reply Like
  • lifeS*X
    , contributor
    Comments (106) | Send Message
     
    I SO like the way some nice guys here put out things "the company should have done this... instead of doing that.... as they would be better off than they are right now...."

     

    Freedom of speech ... such a wonderful thing.

     

    It reminds me how ppl were with AAPL not so long ago pretty much throughout 2013) saying that the company was done, TIM COOK should be fired as he is obviously the worst CEO.

     

    As of course those nice guys saying they should do this instead of doing that are themselves running companies worth half a trillion dollars and know everything from A to Z.

     

    Thank GOD for me, those companies held in my portfolio are in good hands. Not in the hands of those who say everything, do nothing and are probably SO bitter and sour missing out the late 2012 lows of MNST or mid 2013 lows of AAPL ---

     

    Finally when you guys say "should do this instead of that" please provide a proof that what you say work as you have done it yourself. I assume all links directing to those proofs are welcomed.

     

    KA CHING!
    16 Aug, 08:08 PM Reply Like
  • movies555
    , contributor
    Comments (822) | Send Message
     
    Maybe I'm crazy, but HAIN has a 4.3B or so market cap - buy HAIN and blow people's minds. It would also convince people that Coke "gets it" and is trying to evolve with healthier products. Pepsi would have Frito-Lay (which is potato chips and other salty foods) and Coke has what is an effectively a Whole Foods all-star line-up.

     

    Plus, with HAIN they'd get the Celestial Seasonings teas, Blueprint health drinks and Soy Dream/Rice Dream drink products, as well as Mountain Sun juices. While Frito Lay has Lays and other brands, Coke could have Terra Chips. It would radically change the company's image.

     

    Basically, they could buy HAIN and take all the HAIN personal care products and spin them off into another company or sell them, keeping the foods and beverages. A high-end personal care company like that would likely be of interest.

     

    Buy a stake in Monster Beverage and that probably does fine, along with some bonuses (the Hansen drinks), but it's just more of the same and it doesn't do anything to help the image.

     

    Call me crazy, but HAIN would have been an interesting attempt by Coke to really blow people's minds and evolve into something different.

     

    Coke as is is not going to do anything that rocks the boat - you have a board that is probably cushy and set in their ways.
    16 Aug, 04:10 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5584) | Send Message
     
    Nestle may buy (NASDAQ:HAIN). They look very similar.
    16 Aug, 04:36 PM Reply Like
  • movies555
    , contributor
    Comments (822) | Send Message
     
    Nestle and Hain would definitely make sense, plus Nestle has moved more into personal/skin care recently. Thanks for the comment.
    16 Aug, 04:43 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1277) | Send Message
     
    Given Coke underperformance and lack of any common sense among their management ranks other than overpaying themselves it would not surprise me if this move eventually back fires on the shareholders of both KO and MNST.

     

    If Monster did not need the cash then why did they take the money and transfer over their other lines of non energy drinks to Coke. If Monster was the superior brand why bother taking on Coke's energy brands. Coke likely pulled a fast one on Monster and got the products they wanted the non energy drinks and meanwhile has prevented Monster from accepting or combining with say another company.

     

    Monster would have been better served had they merged with another beverage company instead of piece mealing itself off for 2 billion and selling away their other lines of drinks.
    16 Aug, 07:08 PM Reply Like
  • redarrow5150
    , contributor
    Comments (1011) | Send Message
     
    It allows MNST to concentrate on what they do best...Energy Drinks. MNST had over $500 million in cash. I believe you will see them streamline a lot of KO's drink lines and even drop a few as the category is cluttered. KO has done a horrendous job given the brand and pipeline when it comes to energy drinks. Both Red Bull and Monster have kicked their tails in this lucrative category. Why would KO want the non-energy drink lines when they represent less than 5% of MNST sales?

     

    I'm totally confused by your logic of merging with another company. Outside of KO, BUD and Pepsi who has a better distribution system? The only logical partner would've been BUD but the issue is the experience in the soft drink category. PEP wouldn't have worked because the sales distribution would've been in total chaos as the transition would have been messy and difficult going from KO or BUD to them. Finally they didn't piece meal themselves as they still will control 75% of the company for the next 4+ years.
    17 Aug, 12:19 PM Reply Like
  • butchokoy
    , contributor
    Comments (44) | Send Message
     
    Coke wants to expand their non carbonated drinks period. The growth of non carbonated drinks are in double digits while carbonated sodas are flat. Coca Cola is doing a lot of targeted marketing and distribution which they are very good at.

     

    When you go to different countries and neighborhoods, you will notice Coke sells different types of products tailored to that specific market. When you go to a Hispanic neighborhood you'll find Zico in a lot of stores; in downtown office buildings you'll find a lot Illy coffee which is distributed by Coke.

     

    Coca Cola is buying growth.
    17 Aug, 01:09 AM Reply Like
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