Coca-Cola has agreed to swap some brands and buy a 17% stake in Monster Beverage Corp. for about $2.15 billion, increasing its bet on the burgeoning energy-drink market.
The move is part of a deal that will include the transfer of Coca-Cola's energy drinks NOS, Full Throttle, Burn, Mother and Play to Monster, according to a statement. Monster, meanwhile, will shift Hansen's natural sodas and juices, Peace tea and Hubert's lemonade to Atlanta-based Coca-Cola.
Buying a minority stake is less risky, given the recent moves by U.S. regulators to investigate energy drinks' caffeine content, said Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co. Coca-Cola may end up buying the rest of the business once the smoke clears, he added.
Under the agreement, the two companies will share marketing, production and distribution.
Marketing of energy drinks has been particularly challenging for the big beverage companies, Coca-Cola and PepsiCo. Energy drinks have been under fire in recent years, with critics claiming the beverages are unhealthy and that they shouldn't be marketed to younger consumers. Last year, PepsiCo revamped the positioning of its Amp Energy brand, targeting an older consumer.
Much of the marketing is also edgier than is typical of a large, publicly-traded company. Monster, for instance, promotes the Monster Energy Girls -- a crew of scantily-clad women -- at events. The brand's focus has been on events, grassroots and digital marketing. It spends only about $2 million annually on measured media, according to Kantar Media.
Coca-Cola, which already distributes Monster in the U.S. and Canada, will expand the arrangement globally, helping the energy brand grow overseas.
"It gives them exposure to one of the fastest-growing segments of carbonated soft drinks globally," said Mr. Dibadj. "The category's growth is clearly slowing in the U.S., but the potential is very strong globally."
Coca-Cola has the right to purchase as much as 25% of Monster. The investment fits into Coca-Cola's strategy of taking equity stakes in promising new brands and technologies, especially as its main source of revenue is under threat from a shift to healthier habits. In May, Coca-Cola said it would boost its stake in Keurig Green Mountain to 16%, making it the coffee brewer's largest shareholder.
"There is a pattern here, and this is what we are talking about in terms of a different approach to innovative partnerships," Coca-Cola CEO Muhtar Kent said. "We look at deploying capital in an intelligent and efficient manner to get us a very important footprint in growth categories."
While Coca-Cola has helped distribute Monster since 2008 and owns smaller brands such as Full Throttle and NOS, it doesn't have its own major energy drink. By volume, Monster is the leading energy drink in the U.S., with a 38% share, while Red Bull is the second largest player with a 30% share, according to Beverage Digest.
-- Bloomberg News with contributions from Natalie Zmuda