Hansen Natural reached a distribution deal this week with Coca-Cola Co, together with Coca-Cola Enterprises, to distribute its Monster energy drink in six Western European countries as well as Canada and "selected territories" in the US.

The agreement, which was designed to complement Hansen's current distribution relationship with Anheuser-Busch in the US on-trade has not been met with universal approval.

For starters Hansen will take a hefty charge in the region of US$120m for the termination of a number of existing distribution agreements, ie Dr Pepper Snapple Group. In addition, a drop of 16% in the company's share value has left some sceptical as to what the deal will mean for the future of Hansen.

As its shares fell on worries of near-term disruptions in US distribution and fears that a European expansion was ill-timed, Lazard Capital Markets analyst Jacklyn Rider questioned the value of the agreement.

"We believe there is a substantial opportunity across the pond, although we question how lucrative the near-term potential is in the midst of a European economic crisis and, in particular, a weakening UK consumer," Rider said in a note.

Hansen shares were down US$4.45 at $27.51, while those of Coca-Cola fell US$3.66 at $48.91 in late afternoon trading last Monday, as US markets tumbled on fears the widening fallout from the credit crisis would drag the economy into a recession.

Rider added: "The deal will displace select US distributors and Pepsi in Canada for ones within the Coca-Cola network of bottlers; in the short term, this could prove disruptive."

Citi Investment Research analyst Gregory Badishkanian, meanwhile, told Forbes that the news was "likely be perceived negatively".

However, despite the amount of negativity surrounding the deal, Hansen, for its part, will inevitably benefit from Coca-Cola's vast distribution network, and in particular, now has a chance to up the pressure on Red Bull in Europe, a point reiterated by Stifel Nicolaus analyst Mark Astrachan, who views the distribution agreement with Coca-Cola as a positive one for Hansen.

"[The deal] enhances current distribution and gives the company immediate presence in Europe, a large and growing energy drink market," Astrachan added. "We further believe the agreement is the beginning of a broader international expansion by Hansen.

"Additionally, we believe upcoming termination payments to existing distributors will have little impact on the company's cash flows or share repurchase activity."


This point was further reiterated by Goldman Sachs analyst Judy Hong, who said in a note dated 3 October: "The strength of Coca-Cola's bottler network is good news for Monster's global prospects."

Western Europe and Latin America are particularly attractive energy-drink markets, and capturing a 1% share could boost Monster's sales 2-3%, Hong said, adding the success level is difficult to gauge given rival Red Bull's dominant share.

Despite Hansen CEO Rodney Sacks characterising Monster's international progress as "Rome wasn't built in one day", New York publication Seeking Alpha believes that opening up several new markets and having access to the Coke system of bottlers and distributors is a "major step" for the company and emphasises Monster's proven brand strength.

For developed countries, Alpha believes the market for energy drinks is roughly estimated at US$10 per capita at a manufacturing/wholesale level, at which Hansen Natural operates.

And although no two markets are the same, these new markets alone present a US$2.5bn opportunity.

In the long term, the deal looks like it could be a winner for Hansen. As Stifel noted, the company becomes less reliant on the core Monster Energy family as international becomes a larger contributor to growth.