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Monster Eye on Constellation Reflects Changing Trends in Drinks

· Nov 22, 2021
Bloomberg News reported Sunday that Monster, the maker of energy drinks, is exploring a combination with Corona brewer Constellation Brands, citing people with knowledge of the matter. Neither ...

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Growth opportunities, not consolidation, are probably driving Monster Beverage Corp.’s interest in a possible $100 billion deal with Constellation Brands Inc., according to industry analysts. 

Bloomberg News reported Sunday that Monster, the maker of energy drinks, is exploring a combination with Corona brewer Constellation Brands, citing people with knowledge of the matter. Neither company would comment.

News of a possible deal surprised and puzzled Wall Street analysts, who said they see little opportunity for savings to be wrung from a merger of the two companies, given their different lines of business. Instead, the parties are probably focused on growth in newer products, like hard seltzer and cannabis drinks. 

It’s unclear what type of deal might be under study, or what impact a transaction might have on Coca-Cola Co., which holds a 19% stake in Monster. Monster has a market value of $48 billion, while Constellation, which owns a portfolio that includes wine, beer and spirits, is valued at $44 billion, suggesting a merger could approach $100 billion.

Consideration of a deal between the two -- whether it’s a merger of equals or a joint venture -- probably reflects Monster’s interest in the fast-growing hard-seltzer category of alcoholic beverages, according to Mark Astrachan, an analyst at Stifel Financial Corp. 

Monster management views those products as “a dynamic category with long-term growth, especially outside the U.S. It also probably reflects its view that doing so will require partners,” he said.

A joint venture related to the hard-seltzer business “seems logical” for Constellation, Monster and Coca-Cola, which is already in that business through its Topo Chico brand, Astrachan said.

Constellation shares fell 0.5% on Monday, while Monster rose 0.9%, after Bloomberg reported on Monster’s possible interest in a deal. Any transaction would require the support of the Sands family, which is a major shareholder in Constellation. Coca-Cola also declined to comment.

“A possible Constellation-Monster Beverage merger, reported by Bloomberg, offers low synergies, but a joint venture backed by Coca-Cola could offer multiple benefits.”

-- Kenneth Shea, Bloomberg Intelligence

-- Read the report

“The blurring of the lines between alcohol and non-alcoholic beverages” is at the root of whatever interest Monster and Constellation may have in each other, according to Bonnie Herzog, an analyst at Goldman Sachs Group Inc.

“These reported talks are unexpected,” Herzog wrote in response to the Bloomberg News report. “We see very minimal strategic synergies.” 

Analysts see few opportunities for savings in the areas of production or distribution. The ability to expand Constellation’s portfolio in international markets through a deal might be limited by the company’s agreement with Anheuser-Busch Inbev SA to sell the Mexican beer Modelo in the U.S., as well as Monster’s current energy drink distribution agreement with Coca-Cola.

Constellation, based in Victor, New York, has a stake of almost 40% in Canopy Growth Corp., a Canadian marijuana company. Canopy sells THC-infused drinks in Canada, and a deal between Constellation and Monster might create opportunities in that growing category.

However, there is concern that THC drinks might hurt the images of Monster, which is based in Corona, California, and Atlanta-based Coca-Cola.

A joint venture between Monster and Constellation could provide each company with new areas of growth and give Coca-Cola a stronger foothold in the hard-seltzer business, said Kenneth Shea, a Bloomberg Intelligence beverages industry analyst. 

And with Constellation’s current stake in THC drinks, Coca-Cola could add “new, indirect exposure to cannabis” through a joint venture, Shea wrote.