Out­size ri­val hits Mon­ster shares

Business Day - - INTERNATIONAL COMPANIES - Uday Sam­path and Aish­warya Venu­gopal Bengaluru

Mon­ster Bev­er­age’s shares sank 14% on Thurs­day af­ter the com­pany said its top share­holder, Coca-Cola, is de­vel­op­ing two en­ergy drinks that could com­pete with its brand in the com­ing months.

Mon­ster, whose black-and­green cans are a com­mon sight in the hands of skate­board­ers, mo­tor­cy­clists and For­mula 1 driv­ers, is in ar­bi­tra­tion with Coke, the com­pany said on Wed­nes­day. Coke con­firmed that it is de­vel­op­ing two en­ergy drinks and that it has filed for ar­bi­tra­tion with Mon­ster.

Coke’s new prod­ucts may vi­o­late an agree­ment be­tween the com­pa­nies that re­stricts Coca-Cola from mak­ing ri­val en­ergy drinks, Mon­ster Bev­er­age CEO Rod­ney Sacks said.

“We value our re­la­tion­ship with Mon­ster. As in any com­mer­cial re­la­tion­ship, we will abide by our con­trac­tual obli­ga­tions,” Coca-Cola said.

Coke also said “Coca-Cola En­ergy” plans to have caf­feine from nat­u­rally de­rived sources and guarana ex­tract. “It would be de­vel­oped as a pre­ferred op­tion for peo­ple who want these types of in­gre­di­ents in an en­ergy drink.”

MA­JOR RISK

Any com­pe­ti­tion with the world’s big­gest bev­er­age com­pany is a ma­jor risk for Mon­ster, Wall Street an­a­lysts said af­ter Mon­ster re­vealed Coke’s plans dur­ing a con­fer­ence call with an­a­lysts af­ter re­port­ing thirdquar­ter re­sults on Wed­nes­day.

“This re­flects the out­size bar­gain­ing power Coca-Cola has over Mon­ster,” Morn­ingstar an­a­lyst Sofia Vora said in a re­port. “Mon­ster’s abil­ity to se­cure shelf space and dis­tri­bu­tion is con­tin­gent on its re­la­tion­ships within Coca-Cola’s vast bot­tling net­work.”

Coke’s pos­si­ble new en­ergy drinks would raise un­cer­tainty around Mon­ster’s busi­ness, Wells Fargo an­a­lyst Bon­nie Her­zog said. Any com­pe­ti­tion could also mean that Coke which has a his­tory of build­ing own­er­ship stakes in smaller com­pa­nies be­fore even­tu­ally buy­ing them out is un­likely to ac­quire the rest of Mon­ster, she added.

Coke, which has a dis­tri­bu­tion agree­ment with Mon­ster in mar­kets in­clud­ing In­dia, has been look­ing to diver­sify into health, sports drinks and even cof­fee, as cus­tomers con­tinue to ditch its sug­ary fizzy drinks.

Coke in­di­cated that it had pushed the pro­posed launch of its en­ergy drinks un­til April, Sacks said.

Mon­ster shares were down 10% at $50.19 in trad­ing be­fore the open­ing bell on Thurs­day and clawed back more of those losses to trade down 6% by mid­morn­ing in New York.

The com­pany de­clined to com­ment fur­ther on the im­pact on its busi­ness from any com­pe­ti­tion with Coca-Cola, but said its cur­rent ties with Coke, which owns 19% of Mon­ster, would not be ma­te­ri­ally af­fected.

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