Monster Beverage and Coca-Cola: A landmark partnership

Monster Beverage (MNST) reached a crucial deal with Coca-Cola (KO) in August 2014, which would help both companies leverage their respective strengths. Both Monster Beverage and Coca-Cola are components of the Consumer Staples Select Sector SPDR Fund (XLP) and the First Trust Consumer Staples AlphaDEX Fund (FXG). The XLP and FXG ETFs have 19.9% and 17.0% holdings, respectively, in beverage companies.

Under the long-term strategic partnership between Coca-Cola and Monster Beverage, Coca-Cola will acquire a 16.7% stake in Monster Beverage for $2.15 billion and transfer its energy business to Monster Beverage. The brands included in the deal are Burn, Full Throttle, NOS, Play, Power Play, Mother, and Relentless.

Monster Beverage will transfer its non-energy drinks business to Coca-Cola, including brands like Hansen’s Natural Sodas, Peace Tea, Hubert’s Lemonade, and Hansen’s juice products. This will help the company become a pure energy drink player with a portfolio comprising some of the leading brands.

Pursuant to the deal, Monster Beverage will also amend its current distribution agreement with Coca-Cola, expanding it further and make the beverage giant its preferred distribution partner. In February 2015, Monster Beverage sent termination notices to several US third-party distributors. Smaller companies like Monster Beverage and Dr Pepper Snapple (DPS) depend on Coca-Cola and PepsiCo (PEP) for distribution of some of their brands.

Monster Beverage already has a strong foothold in the energy drink market. This deal, which is expected to close in the second quarter of 2015, will help the company to further strengthen its leadership by leveraging Coca-Cola’s extensive distribution network.