Will Monster get swallowed up by the Coca-Cola Company?

Will Monster get swallowed up by the Coca-Cola Company?

How likely is a takeover of Monster Beverage and will US authorities legislate against the energy drinks category?  

These are some of the questions that occupy observers of the segment. The California-based privately-owned Monster has seen speculation in the past over possible bids by the Coca-Cola Company and Anheuser-Busch. Rumours have calmed of late. But in a note initiating coverage on the company, Wells Fargo analyst Bonnie Herzog suggests Coca-Cola remains the most obvious suitor.  

“We believe that Coca-Cola is still the most likely buyer of Monster given the distribution arrangement the two companies have,” the note says. However, Monster still faces a host of legal issues and Herzog suggests Coca-Cola would wait until these are resolved before tabling a bid. 

Yet, the soft drinks giant may be tempted not to hang around bearing in mind the sluggish nature of the CSD category in the US.  

With regard a price, the note adds: “Coca-Cola paid about 20x EBITDA for Glaceau (water), a very high premium, and one that we suspect management would be reluctant to do again, based on public comments the company has made. “However, given the challenges of the CSD market in the United States, we believe that there is still a possibility that Coca-Cola would be interested in buying Monster and potentially paying a similar multiple for Monster.” 

Returning to the issue of regulation, Herzog says “given the heightened public focus on sweetened and caffeinated beverages, we would not be surprised if some level of additional regulation is introduced at some point in the future." 

However, the note adds: “We believe Monster is confident in its position as having a safe product”. 

Ultimately, Wells Fargo is positive on the stock pointing to the fact that Monster plays in a “very attractive” and “profitable segment”, has a “strong innovation pipeline”, while international expansion opportunities remain “robust”.