(Press-Enterprise (Riverside, CA) Via Acquire Media NewsEdge) Aug. 16--When Monster Beverage executives held a pre-construction celebration for a corporate headquarters relocation and expansion in Corona last year, the company dropped a Coca-Cola-sized hint it was on a roll.
There were no suits, no scissors when the company revealed its relocation to a glistening, six-story building along Highway 91 to accommodate growth through 2018.
Professional motocross riders, instead, had the run of the place. High-energy action, indeed.
On Friday, it was time for serious business. The granddaddy of soft-drink products, The Coca-Cola Co., and Monster Beverage Corp. put a 2-year-old rumor to rest with news of a $2.15 billion deal.
Coca-Cola is buying a 16.7 percent stake in Monster, a leading energy-drink maker, to form a long-term strategic partnership to accelerate growth for both companies across North America and the world.
The Atlanta-based giant will be acquiring the soft-drink and juice lines as part of the deal, while Monster gets to draw on the success of the energy products Coca-Cola makes.
Coca-Cola gets Hansen's Natural Sodas, Peace Tea, Hubert's Lemonade and Juice products. Monster gets NOS, Full Throttle, Burn, Mother, Play and Power Play and Relentless from Coca-Cola, all products with which Atlanta company has enjoyed far less market fizz.
Rodney Sacks, chairman and chief operating officer of Monster, said in an early morning conference call with investors and analysts Friday that this is the first time any brand has truly worked itself into the Coke global system.
"We are absolutely aligned with Coke," he said of a strategic partnership that Monster believes will help both companies determine strategies in each country for pricing, product position and distribution.
Monster, reporting $2.2 billion in sales in 2013, said the products that will be transferred to Coca-Cola reached $150 million in sales that year. On the energy-drink side, Monster reported $330 million in sales.
"Our end goal is to end up with Monster as a truly global brand," Sacks said, forecasting revenue growth to $2.4 billion through the deal.
Both companies said their sights are set on China, and on enhancing the brand images of all the product lines -- for Monster, particularly those in the energy-drink genre.
"The whole objective is to wind up in a single system,'' Sacks said. "In the U.S., it'll be a more rapid transition. Markets like China are a very long-term, strategic goal for us."
With Coca-Cola as a partner, Sacks said the company believes it will be easier to clear regulatory hurdles in China. "Now that we have a partner to work with, we will get China to go forward quickly," he said, expressing the view that China will be a big market for energy drinks in 10 years.
Monster, with its iconic neon-green 'M' claw brand, will retain its marketing independence when it comes to the energy drinks.
The business is one of California's rags-to-riches stories, which was driven by the buzz it generated with the skateboard, snowboard, sport and music fans in the 18- to 34-year-old bracket -- not to mention the anarchists, road warriors, geeks, bikers, metal heads and hipsters.
"It's a good way to move forward," Sacks said. "It's unique, (and) I'm not aware of any brand that's able to get into the Coke system this way, and still retain the brand and its personality, and drive the brand forward."
Shares of Coca-Cola rose nearly 2 percent to $40.88 by dusk Friday, and Monster stock got a real jolt. After- trading percentages showed a more than 30 percent gain with stock trading after hours at $93.49 a share.
Officials in the city of Corona were revved up, too. Darrell Talbert, director of administrative services in Corona, said the city is excited for Monster, as the company moves to leverage the opportunities that Coca-Cola offered.
"This company will only continue to grow and dominate the energy-drink segment of the market," Talbert said.
The transaction is expected to close later this year or in early 2015.
Timelines for the product swap, and the impact it will have on distribution points and employees at either company, were not shared.
But Talbert said Corona has no fear the company will relocate. "We've enjoyed a great working relationship with Monster," he said. "This only leverages their strength with distribution."
Monster recently moved into its larger headquarters on Monster Way. The facility was outfitted with 500 workstations and 175 private offices, as well as a creative "test lab" for employees and athletes to sample new beverage products.
NO RUSH ON TIMING
Monster officials said no magic is tied to the timing of the announcement; rather, it's based on a maturing of the Monster brand.
"We have, in some countries, been profit-challenged," Hilton Schlosberg, Monster's vice chairman and president said. "Now, we can re-evaluate all our chains from material to sale and distribution of product. Hopefully, we can move positively forward in many countries where we struggle to date."
Monster has an energy-drink presence in about 114 countries, company officials said.
For Coca-Cola, the transaction helps it look beyond its own portfolio of Sprite, Dasani, Powerade and other drinks for growth. The soft-drink company also bought a 10 percent stake in Green Mountain Coffee Roasters for $1.25 billion.
For Sacks, who controls 9.4 million shares of the Corona-based company, and Schlosberg, who has more than 9 million shares, this transaction is part of a strategy that began years ago.
Sacks and Schlosberg told Businessweek in 2005 that they met in South Africa, and decided to go into business for themselves in 1989. As the story goes, the pair raised more than $5 million from family and friends.
They shopped around for two years, and in 1992 bought the Hansen Beverage Co.'s brand natural soda and apple juice business.
Under their oversight, the duo that bought Hansen Natural for $1.7 million and a ledger that was $12 million in the red, began to play with different energy-drink formulas. In 2002, the company rolled out Monster at Red Bull prices and launched the marketing campaign, "Unleash the beast."
By 2006, Investor's Business Daily rated the company No. 1 in its list of fastest-growing firms. That fall, Forbes magazine gave the company, still working under the Hansen name, billing in the 200 Best Small Companies in the nation.
The company changed the name of the company to reflect the brand in January 2012.
Coca-Cola explored buying Monster in 2012 and found the price too high, according to a report by Bloomberg News around that time.
Evan Pondel, a spokesman for Monster, did not say if the recent expansion was linked to Friday's announcement.
"I do think this is somewhat of the American dream story here, where you have two entrepreneurs who found an opportunity," Pondel said. "Now, you have a long-established corporation that sees an opportunity in what these two entrepreneurs have created. This is a true culmination of the fruit of their labor."
Bonnie Herzog, a senior analyst with Wells Fargo Securities, in an analysis Friday of the announced transaction, said this raises the stakes in the soft- drink and energy-drink business, and is a win-win for both.
"We believe this transaction is very powerful,'' she wrote, because it leverages Coca-Cola's vast global distribution network and is expected to significantly accelerate Monster's international business. "As a result, both companies will be able to capitalize on each others respective strengths."
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