Coca-Cola Co (NYSE: KO) Signs Deal With Monster Beverages Corp (NASDAQ: MNST)

Coca-cola Co (NYSE: KO) announced yesterday that it had signed an agreement with Monster Beverages Corp (NASDAQ: MNST). Coke has agreed to pay a price of $2.15 billion to purchase a 16.7 percent stake in Monster. This deal will combine the two energy drink companies and further widen Coke’s power beyond soda.

Under the terms of the deal, Coke will hand over its energy drink business, which includes brands such as Full Throttle, NOS, Mother, Play, Power Play, Relentless, and Burn, to Monster. In turn, Monster will transfer its business not associated with energy drinks, such as Peace Tea, Hansen’s Natural Sodas, Hansen’s Juice Products, and Hubert’s Lemonade, to Coke.

Analysts and industry experts have long expected Monster to be a target for a takeover, and identified Coke as the best candidate to buyout the energy drink company. Sales in the energy drink space have been a shining beacon in the market for beverages, even though their sales growth has flattened a bit in the last few quarters.

This announcement rides on the back of Coke’s struggles in the traditional soda market. The soda sales growth all over the globe is on the decline for the third year in a row now. Coke’s worldwide soda volumes dropped in the first quarter of 2014 for the first time since 1999. However, carbonated beverages still contribute to more than 70 percent of its global sales volumes.

Under the deal, Coke will also place two directors on Monster’s executive board. Monster will also make Coke its preferred global distribution partner, and Monster will now be Coke’s exclusive energy drink partner.

The deal is expected to close sometime in late 2o14 or early 2015.s

In after hours trading after the deal was announced, stock prices of Monster leapt 21 percent to $86.78. Coke shares rose by 1.4 percent to $40.74.

The deal with Monster is the second big investment this year. Earlier in 2014, the soda company purchased a 10 percent stake in Keurig Green Mountain Inc (NASDAQ: GMCR). Coke had paid roughly $1.25 billion for the specialty coffeemaker company. In the deal, Coke also agreed to a 10 year partnership where it will sell its drinks through an at-home beverage system that is currently being developed by Keurig Green Mountain. This product is expected to hit retail stores sometime next year.

The deal with Keurig Green Mountain provides Coke with a vast amount of market power in the coffee and tea space. Keurig Green Mountain is the maker of the Keurig single serve coffee machine. The coffee and tea space has been growing at a faster rate than soda in the past few years, mainly due to the fact that Americans are changing their preferences to caffine and warm beverages.

Coke later disclosed that they will increase their stake in Keurig Green Mountain to 16 percent.