Coke Ready to Swallow a Monster? (KO, MNST, PEP, DPS)

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When the largest soft-drink company in the US can’t make a competitive product in a growing market, it looks around for a company it can buy. It appears that the Coca-Cola Co. (NYSE: KO), with its dismally performing Full Throttle brand of energy drinks, is now taking a hard look at Monster Beverage Corp. (NASDAQ: MNST).

In a market dominated by privately held Red Bull, Monster is #2, with privately held Rockstar at #3. And if Coke wants to play, it should want to play no lower than #2. Competitors Pepsico Inc. (NYSE: PEP) and Dr. Pepper Snapple Group Inc. (NYSE: DPS) are nowhere in the fast growing energy market either, and that has added even more fuel to the rumors of a Coke-Monster tie-up. Both Coke and Pepsi passed on making an offer for Monster last year, when it might have been cheaper.

Coke’s reasons not to buy Monster may be at least as good as its reasons to take the plunge. Monster’s shares have more than doubled in the past 12 months and the company’s forward P/E ratio is nearly 33. And the company’s share price at Friday’s close put its market cap at about $11.4 billion. That’s a pretty rich deal and would be Coke’s largest ever acquisition. The company acquired Vitaminwater maker Glaceau in 2007 for $4.2 billion.

Shares of Monster are up more than 15% in the late afternoon at $74.96 after pulling back from a new 52-week high of $83.96 set earlier today. At $75/share, Monster’s market cap is slightly more than $13 billion.

Paul Ausick