In what one analyst called a "blockbuster deal," Atlanta-based Coke will pay $2.15 billion in cash for a 16.7% stake in the Corona business. If regulators approve the deal, Coke will transfer its energy drink brands — such as NOS, Full Throttle and Burn — to Monster and claim two seats on the smaller company's board.
Monster, known as Hansen Natural Corp. until 2012, will hand over non-energy drink brands such as Hansen's Natural Sodas and Hubert's Lemonade.
"The carbonated soft drink business in the U.S. has been in decline for nine years — energy drinks are one of the few good growth areas," said John Sicher, editor of industry publication Beverage Digest. "This is a terrific deal for both of these companies."
Monster stock, which closed up 0.7%, or 50 cents, to $71.65 a share Thursday, jumped more than 20% in after-hours trading. The price has risen nearly 6% so far this year.
Coke finished Thursday up 0.6%, or 24 cents, at $40.18 a share and saw a small bump in after-hours activity. The stock is down 1.2% from the beginning of 2014.
Energy drinks pull in $6.8 billion in annual revenue in the U.S., according to an April report from research group IBISWorld. That figure grew 10.8% on average each of the past five years and is expected to swell 9.7% annually through 2019.
Only 5% of American adults consume energy drinks regularly, allowing manufacturers room to expand, according to data from Packaged Facts. Experts say that new products — such as energy shots, organic options and liquid drink mixes — could further boost profits.
Coke and main rival PepsiCo have struggled to carve out space for their energy drink brands. The industry is dominated by privately owned Red Bull, which controls nearly a third of the industry, and Monster, which has a 28.7% foothold, according to IBISWorld.
Coke, with a 6% share, is beat out by companies such as Living Essentials and Rockstar Energy.
Monster has argued against accusations from some regulators and health advocates that the caffeine levels in its energy drinks are unsafe. The company says lawsuits alleging that the drinks contributed to the deaths of some customers are without merit.
But the controversy hasn't stopped the company from increasing its revenue in every quarter except one in the past five years.
Most recently, Monster boosted net sales by 8.9% year over year to $687.2 million for the second quarter ended June 30. Earnings per share have grown by double digits each of the past four quarters, most recently surging 30.6% to 81 cents.
Monster Energy drinks made up 93.1% of the overall company's revenue during the second quarter.
The arrangement with Coke, designed to "accelerate growth for both companies in the fast-growing, global energy drink category," is set to be finalized later this year or early next year, the companies said.
Coke hopes to tap Monster's years of expertise in the energy drink industry. Monster will have access to an international bottling network used by Coke, which owns beverage brands such as Sprite, Vitaminwater and Minute Maid.
Monster said in recent regulatory filings that its growth strategy includes global expansion. Foreign customers accounted for 23% of gross sales in the second quarter — not a substantial uptick from the 22% share the same period a year earlier.
Monster isn't Coke's first unexpected deal this year. The beverage giant is now the largest shareholder of K-Cups maker
"Coke is very ready and able to explore different ways to enhance its growth beyond its existing portfolio," Sicher said.