Monster Beverage exploring deal with Constellation Brands, Bloomberg reports

Dive Brief:

• Monster Beverage is exploring a deal with Modelo and Corona brewer Constellation Brands, according to Bloomberg.
• The news service said it is unclear what the structure of a tie-up could be and whether the discussions will lead to a full merger or an asset deal.
• The beverage sector has been active in 2021 when it comes to partnerships and acquisitions, highlighted by Coca-Cola buying the rest of BodyArmor for $5.6 billion earlier this month.

Dive Insight:

A partnership between these beverage industry heavyweights would bring together two multibillion-dollar companies who have successfully carved out prominent niches in their respective areas: Monster in energy drinks and Constellation in Mexican beers.

Media reports indicate talks are still ongoing and what type of deal takes place, if at all, is yet to be determined. If the two companies decide to merge, it would create a beverage juggernaut with a combined market value of close to $100 billion. The new company would have a dominant portfolio with brands like Modelo, Corona and Monster Energy. 

As part of a full-on deal or partnership, the CBD space could be an option. Monster has reportedly been looking into the area, but Bloomberg noted the company has some reservations that doing so could hurt its image. If it was seriously interested in exploring the area, Monster could tap into Constellation’s relationship with Canopy Growth. Constellation has spent about $4 billion to acquire an estimated 40% stake in the Canada-based cannabis company.

A complicating factor that could make a partnership more likely than a merger is that Monster has close ties to Coca-Cola. The beverage giant purchased a 16.7% stake in Monster in 2015 and agreed to distribute its energy drinks in the U.S. and Canada. Coca-Cola, with its global reach, could be a valuable partner for Monster to expand to other international markets.

The beverage sector as a whole has seen ongoing blurring between nonalcohol companies and their alcohol counterparts. 

Coca-Cola and Molson Coors first teamed up in 2020 to create Topo Chico Hard Seltzer, which hit U.S. shelves earlier this year in nine states. After a promising launch, Molson Coors announced it would roll out the beverage nationwide in 2022. And earlier this summer, PepsiCo and Sam Adams maker Boston Beer debuted plans to launch a hard offering under the Mtn Dew brand expected to reach shelves early next year.

Morgan Stanley analyst Dara Mohsenian said in a note on Seeking Alpha that some type of combination between Constellation and Monster would make sense given that beverage companies are looking to gain incremental revenue opportunities. Hard seltzer could be one possibility. While the growth in hard seltzer has slowed from its prior breakneck pace, it still remains a lucrative category and one where Monster could potentially find success given its brand recognition.

Referencing Constellation (STZ) and Monster’s (MNST) ticker symbols, Mohsenian said, “We have long been of the opinion that a STZ/MNST hard seltzer agreement between the two entities could make sense given MNST has been hesitant to launch in a crowded hard seltzer space and STZ’s lack of success so far in the segment, with MNST providing its brand name, and STZ potentially producing, as well as distribution the brand through its system.”