Monster Acquisition Rumors
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Rumors about Coca-Cola (NYSE: KO) planning to purchase Monster Beverage (NASDAQ: MNST) sent Monster shares soaring today, at one point reaching nearly $84 per share, although Monster's share price dropped back down to $65 after Coca-Cola announced that it did not plan to buy Monster. Coca-Cola's decision today probably means that Monster won't be acquired in the near future, because if the stock costs too much for Coca-Cola it may also cost too much for other prospective buyers, and Coca-Cola's decision also illustrates how quickly Monster's revenue has risen.
A Reuters article mentioned that Monster managers did talk to Coca-Cola about a possible sale in 2011, although Coca-Cola also decided not to buy Monster in 2011 because of Monster's high price. Part of the reason for Monster's current price may be the potential for an acquisition, and Coca-Cola isn't the only company that might think about buying Monster. Energy drinks offer a chance for many companies in the wider beverage sector to show strong revenue growth in a sector that is typically considered to be fairly defensive, although Monster is too big to be acquired by a smaller player in the beverage industry.
The other obvious potential buyer is Coca-Cola's main competitor, Pepsi (NYSE: PEP). Like Coca-Cola, Pepsi's core business, traditional soft drinks, has been attracting fewer shoppers. Pepsi recently redesigned its own AMP energy drink line because of the strong competition in the energy drink market, and Monster has a product with proven results. Monster has higher margins than other soft drink companies and rising food costs limit Pepsi's margins, so a deal could improve several metrics for Pepsi. Of course, Pepsi also knows that Monster stock is expensive right now, and Coca-Cola doesn't think buying Monster at this price is attractive. A Bloomberg article explains that Pepsi actually considered buying Monster in 2011, around the same time that Monster also talked to Coca-Cola about a deal. Pepsi also decided not to buy Monster in 2011 because Monster cost too much, and Monster's market cap is even higher now at $11.33 billion, so a Pepsi acquisition is probably out.
Soft drink companies aren't the only companies that could potentially acquire Monster. The beer company Anheuser-Busch (NYSE: BUD) could also be a possible Monster buyer. Anheuser-Busch and Coca-Cola are Monster's two main distributors, so Anheuser-Busch also has experience selling Monster's products. Monster already provides Anheuser-Busch a popular non-alcoholic drink to sell at alternative sports events, so the companies do seem like they work well together.
I haven't seen SABMiller (NASDAQOTH: SBMRY.PK) mentioned as a potential Monster buyer, but it seems like it could gain the same benefits Anheuser-Busch would receive from an acquisition. SABMiller has a market cap of $66.83 billion, so it seems like it could be big enough to buy Monster, and a Monster acquisition would also give SABMiller an alternative to beer that it could sell at stadiums around the world. Anheuser-Busch seems like it would be a more likely buyer because of the distribution agreement, but SABMiller and Monster still seem like they could be a good team.
Anheuser-Busch and MillerCoors would probably come to the same conclusion as Coca-Cola right now, but even if a buyout doesn't happen, Monster looks like a promising growth stock. Monster reported 28.6 percent higher revenue growth for the quarter, which was much stronger than Coca-Cola's figure of 5.9 percent or Pepsi's 4.1 percent figure. Monster's revenue growth was also much better than Anheuser-Busch, at 4.2 percent, or SABMiller, at 10.7 percent. Monster may have grown too big for investors thinking about buying the entire company, but a decision not to buy Monster because of its current market cap just shows off the company's monstrous growth.
enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend Monster Beverage, PepsiCo, and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
