CORONA, CALIF. — Shares of Monster Beverage Corp. fell more than 13% in early market trading on Nov. 8 after the Corona-based energy drink maker a day earlier said it is involved in an arbitration fight with The Coca-Cola Co. over the release of two new energy drinks.
Coca-Cola and Monster have been partners since mid-2015, when Atlanta-based Coca-Cola acquired an approximate 16.7% stake in Monster for a net cash payment of approximately $2.15 billion. As part of the arrangement, Coca-Cola transferred to Monster the ownership of its global energy drink business, which includes NOS, Full Throttle, Burn, Mother, BU, Gladiator, Samurai, Nalu, BPM, Play and Power Play, Ultra and Relentless. Monster transferred to Coca-Cola its non-energy drink business, including Hansen’s Natural Sodas, Peace Tea, Hubert’s Lemonade and Hansen’s Juice Products.
As part of their original agreement, Coca-Cola agreed not to compete in the energy drink category with certain exceptions, a provision of the partnership that Monster now claims Coca-Cola is violating.
“As some of you may have read, Coca-Cola has developed two energy products it believes it may market under an exception relating to the Coca-Cola brand,” Rodney C. Sacks, chairman and chief executive officer of Monster, said during a Nov. 7 conference call with analysts. “We believe that the exception does not apply. Upon mutual agreement to obtain clarification, the issue was submitted to arbitration last week on Oct. 31, 2018. Coca-Cola has indicated that it has suspended the proposed launch of such energy products until April 2019.”
The beverages will be called Coca-Cola Energy and Coca-Cola Energy No Sugar.
Despite the situation involving Coca-Cola’s energy drinks going to arbitration, Mr. Sacks said Monster’s relationship with the beverage giant remains good.
“Coke (is) obviously looking at their own portfolio and looking for where they believe they see opportunities and where their own (bottlers) would look to expand their own portfolio,” he explained. “There is an exception for certain products that are in the Coca-Cola brand. And that is, in and of itself, an area that we’re looking at. We have a difference of opinion on it. We don’t know — at this point, we don’t think it’s appropriate for us to speculate on, if that comes to fruition, what effect that might or might not have on our brand. I mean, we continue to be partners with Coca-Cola and with the bottlers. We continue to have our full range sold by them. And we just don’t think that at this point, we would be in a position — or should be in a position — to speculate on what effect that might have. It would just be another product being sold by Coca-Cola bottlers, but the impact and effect on us would be something, I think, wouldn’t be appropriate for us to deal with. We don’t believe it will have a material impact on our relationship. We just believe we’ll have to manage it in an appropriate way if and when it occurs.”
Hilton H. Schlosberg, vice-chairman, president, chief financial officer and chief operating officer, stressed that Monster and Coca-Cola have agreed to go to arbitration “civilly” to determine what course of action is appropriate.
Net income at Monster in the third quarter ended Sept. 30 totaled $267,733,000, equal to 48c per share on the common stock, up 22% from $218,744,000, or 39c per share, in the same period a year ago. Net sales increased 12% to $1,016,160,000 from $909,476,000.