⚡ Is There A Monster Constellation?

Blow for Didi; Tesla to expand Shanghai factory.

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⚡ Monster: The Monster Constellation?

Energy drink manufacturer Monster Beverage Corp. (MNST) is in talks with Constellation Brands (STZ) for a proposed merger. If the deal goes through, the combined entity may have a market value exceeding $90B. But many factors, including Coca-Cola, stand in the way of this matrimony. (Tweet This)

Let’s Have A Drink!

“Energy drinks” have been under fire for some time. Many studies have pointed to excess caffeine causing severe heart and blood vessel problems and an increase in the heart rate and blood pressure.

Monster Energy, however, has managed to dodge these concerns. The European Food Safety Authority validated that adequate consumption of the drink is not a safety concern. Monster Energy is synonymous with Monster Beverage Corporation (erstwhile Hansen Natural Company).

As of 2020, Monster had a 39% market share in the global energy drink market, a close second to Red Bull which enjoyed a 43% market share.

In addition to Monster Energy, the Monster brand portfolio consists of 39 different drinks, including Java Monster, Extra Strength, Dragon Tea, Muscle, among others. Monster has been a perennial sponsor of extreme sports events like MMA, Ultimate Fighting Championship, Motorcycle Speedway, and others, promoting music bands from around the world, including 21 Savage Iggy Azalea, and Machine Gun Kelly.

Now a bit about Constellation Brands, the New York-based producer of beer, wine, and spirits. It ranks third in terms of market share among the major beer suppliers in the US. Its portfolio includes brands such as Corona Extra, Kim Crawford, SVEDKA Vodka, and High West Whiskey.

Reports of Monster exploring a deal with Constellation surfaced just a few weeks after Coca-Cola acquired the remaining shares of BodyArmor for $5.6B. Both the protagonists of our story kept mum, with Monster resorting to silence and Constellation terming the reports as “speculation.”

A Crazy Combination?

As of Wednesday’s closing, the combined market value of both these companies was over $90B. A deal involving Constellation Brands will require the blessings of the founders – the Sands family. But multiple hurdles are lurking if the deal were to be done by the two parties.

The Coca-Cola Company had acquired a 16.7% stake in Monster Beverages in 2015. It swapped its energy drinks portfolio with Monster’s juice products and soda brands. Over a period of time, Coke increased its stake in Monster to 19.7% and became its global distributor.

Monster and Constellation getting together may not go down well with Coke and may jeopardize Monster’s distribution agreement with Coca-Cola.

Last year, Monster was mulling options to incorporate Hard Seltzer and CBD (Cannabidiol) products into its portfolio. However, due to concerns that such a move may tarnish the company’s image, the company didn’t move on these products.

Such issues may resurface as Constellation owns a stake of ~40% in Canopy Growth. This Canada-based Marijuana company sells drinks laced with Tetrahydrocannabinol (THC), the key intoxicant in Marijuana. Canopy intends to sell them in the US if Marijuana becomes federally legal.

Then come the regulators. In the recent past, authorities have been wary of allowing two strong hands to merge. So be that as it may, the regulators may not want drinks that combine caffeine and alcohol out in the market for obvious reasons.

On the financial front, Monster Beverages reported record sales in Q3 2021. Its topline rose 13.2% Y-o-Y to $1.41B, and the Energy Drink segment increased by 14.3% Y-o-Y. Due to the global supply chain doldrums precipitated by the pandemic, Monster faces high operational costs for aluminium cans, shipping, freight, and other inputs.

Monster may want to create a monster constellation, but Coke may prove to be the biggest choke in their grand plans! Even so, the company has returned a staggering 3,80,000% since 1997 to its shareholders, who are still cheering it on to continue its magical run.

Market Reaction
MNST ended at $89.09, up 0.53%. Shares are down 1.7% this year.

Company Snapshot 📈

MNST $89.09 +0.47 (0.53%)

Analyst Ratings (23 Analysts) BUY 61%  HOLD 35%  SELL 4%

Newsworthy 📰

Blow: China asks Didi to delist from US on security fears (DIDI -0.06%)

Settlement: Micron, UMC to withdraw IP complaints against each other (MU +0.94%)

Bigger: Tesla to invest $188M to expand Shanghai factory capacity (TSLA +0.63%)

Today’s Market Terminology: Averaging

Averaging means the investor buys more stock when its price goes down. This decreases the average purchase price. This strategy works if the stock price goes back up

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