Monster Beverage and Constellation Mergers Talks Are Progressing
Monster Beverage and Constellation Mergers Talks Are Progressing
(Bloomberg) -- Talks between Monster Beverage Corp., the maker of energy drinks, and Corona brewer Constellation Brands Inc. about a combination are progressing, according to people familiar with the matter.
A merger agreement could be reached in the coming weeks if negotiations proceed smoothly, the people said, asking not to be identified discussing private information. The similarly sized companies have a combined market value of about $90 billion.
Shares of Monster, which counts Coca-Cola Co. as a major shareholder, have fallen about 8% through Monday since Bloomberg News reported in November that it had held discussions with advisers about a potential tie-up with Constellation, whose Class A stock is flat during that period.
Constellation fell 0.9% on Monday, valuing it at $44.4 billion, while Monster’s shares declined 0.3%, giving it a market capitalization of $43.7 billion.
An agreement might take longer to reach or could still fall apart, the people said. The exact structure of the transaction under discussion couldn’t immediately be learned.
Representatives for Corona, California-based Monster Beverage and Constellation declined to comment.
While a tie-up with Constellation could open up growth opportunities for Monster, some analysts see limited opportunity for cost savings because they operate in different segments. Any deal would create a unique combination of energy drinks, alcoholic beverages and potentially marijuana.
In January, Monster announced the $330 million purchase of Canarchy Craft Brewery LLC. That deal added about a half-dozen brands including Squatters, which makes Juicy IPA, to its drink portfolio. A tie-up with Constellation would represent a much more significant bet on alcoholic drinks.
A possible tie-up “could give the new entity a jump on the growing scramble to serve the surging U.S. market for low-alcohol drinks,” according to Bloomberg Intelligence analyst Kenneth Shea. After the Canarchy deal, “we expect the strategic move into the crowded and competitive domestic alcoholic-beverage market as risky, since it will have to boost spending to scale up operations nationally and compete with larger companies with more resources.”
Constellation also has a stake of almost 40% in Canopy Growth Corp., a Canadian cannabis company that sells THC-infused drinks in that country. That could have implications for Coca-Cola’s almost 20% stake in Monster and its distribution pact with the beverage maker. Critics have expressed concern that producing THC drinks might hurt the images of Monster and Atlanta-based Coca-Cola, while others say it presents an opportunity for Coca-Cola to add indirect exposure to the growing market for cannabis products.
A potential transaction would likely require the support of the Sands family, which is a major shareholder in Constellation and holds top board positions.
The firm, which is based in Victor, New York, started as a wine producer in 1945. It now sells Corona Extra and Model Especial in the U.S. as well as Casa Noble Tequila, Svedka Vodka and High West Whiskey.
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