Monster Rises After WSJ Reports Coca-Cola Takeover Talks

Monster Beverage Corp. (MNST) surged the most in almost eight years after the Wall Street Journal reported Coca-Cola Co. (KO) is in talks to buy the maker of energy drinks.

The shares rose 17 percent to $76.60 at 2:31 p.m. in New York after climbing as much as 28 percent, the biggest intraday gain for Corona, California-based Monster since May 7, 2004. Atlanta-based Coca-Cola fell 0.5 percent to $76.24.

Coca-Cola may sell some of its bottling assets to help pay for the takeover, the Journal said, citing unidentified people familiar with the situation. A tie-up with Coca-Cola would give Monster better access to international markets, where it is second to leader Red Bull with a little more than half its volume share, according to Euromonitor Plc.

“Coke would be able to grow Monster internationally at a far more rapid pace,” Thomas Mullarkey, an analyst for Morningstar Inc. (MORN) in Chicago, said today in a telephone interview. “If Coke wants to compete in energy drinks, acquiring is a faster way to achieve it.” Mullarkey had said Monster was worth $73 a share in a buyout, before today.

Monster trades at more than 30 times estimated 2012 earnings, and Coca-Cola may not want to pay a large premium for the beverage-maker because the two companies already have a distribution deal, the Journal reported.

Photographer: George Frey/Bloomberg

Coca-Cola Co. Swire bottling plant in Salt Lake City, Utah, on April 24, 2012. Close

Coca-Cola Co. Swire bottling plant in Salt Lake City, Utah, on April 24, 2012.

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Photographer: George Frey/Bloomberg

Coca-Cola Co. Swire bottling plant in Salt Lake City, Utah, on April 24, 2012.

Judy Lin Sfetcu, a spokeswomen for Monster, declined to comment. Ben Deutsch, a Coca-Cola spokesman, couldn’t immediately comment.

Industry’s Highest Margin

As of the April 27 close, Monster had a market capitalization of about $11 billion. At that price it would be Coca-Cola’s second-biggest deal after its $12.2 billion acquisition of the North American operations of bottler Coca- Cola Enterprises Inc. in 2010, according to data compiled by Bloomberg.

Monster, which got its start selling juices in the 1930s, had the highest operating margins in the industry as of March and was projected to boost earnings 70 percent in the next three years, analysts’ estimates compiled by Bloomberg showed. U.S. alternative beverage sales reached almost $32 billion last year, according to estimates the Beverage Marketing Corp.

Monster Beverage, formerly known as Hansen Natural Corp., sold juices and sodas under the Hansen name before introducing the first Monster Energy products in 2002 to capture growing demand for drinks made with added caffeine or supplements to deliver an energy boost. Monster brands, ranging from coffee- based Java Monster to its Nitrous drink injected with nitrous oxide, now account for about 91 percent of sales, according to the company’s most recent annual statement.

Monster Beverage’s revenue climbed an average of 24 percent in each of the past five years, compared with average annual sales growth of 15 percent for Coca-Cola and 14 percent for PepsiCo Inc. (PEP) in the same period, according to data compiled by Bloomberg. Monster’s operating margin of 27 percent in 2011 was the highest among publicly traded North American soft-drink companies with a market value greater than $500 million, the data show.

To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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