Coca-Cola nabs a monster, Monster Beverage

Coca-Cola stepped up its investments in alternative beverages on Thursday with a 17% stake in energy drink marketer Monster Beverage — an investment that Coca-Cola CEO Muhtar Kent said could eventually increase to 25%.

The long-anticipated move, a $2.15 billion deal, comes as Coke's carbonated soft-drink business continues to decline even as Monster's energy drink business expands. Coke has been under investor pressure to find new growth.

"Coca-Cola certainly needs growth,'' says Bill Chappell of SunTrust Robinson Humphrey. "Monster has a leading share in the U.S. energy drink market, and they have been gaining share overseas. It's a nice shot in the arm for Coca-Cola going forward."

Monster Beverage soared 26% to $90 in after-hours trading. Coca-Cola was up slightly more than 1% after hours. The deal is expected to close in late 2014 or early 2015.

In a conference call, Kent declined to state if he wanted to purchase more — or all — of Monster. He said Coke has an option to increase its ownership to 25%, "however we are under no obligation to make make additional investment. We'll evaluate all options over time."

Rodney Sacks, CEO of Monster, similarly declined on the conference call to say if he considered — or will consider — selling all of Monster to Coke. "What will be will be. We're still having fun and enjoying running the company."

The partnership between the aging soft-drink giant and the upstart energy drink marketer is aimed to accelerate sales in the energy drink sector, where Monster has a No. 1 share. Coca-Cola, which already distributes Monster products, will become Monster's preferred distribution partner, while Monster will transfer its non-energy brands, including Hansen's Natural Soda and Peace Tea, to Coca-Cola.

"Our equity investment in Monster is a capital-efficient way to bolster our participation in the fast-growing and attractive global energy drinks category,'' said Kent. "This long-term partnership aligns us with a leading energy player globally, brings financial benefit to our company and our bottling partners."

Coca-Cola, which nearly acquired Monster outright in 2012, has faced declining soft-drink consumption in North America and overall global soda sales growth that is likely to decline for the third consecutive year. While Coke has diversified into juices, bottled water, Powerade and Keurig Green Mountain coffees, carbonated beverages still account for more than 70% of sales volume.

Monster, along with many energy drink makers, has faced controversy over high levels of stimulating ingredients, including caffeine and guarana. The Food and Drug Administration has investigated reports of deaths that some have linked to energy drinks, but the agency says there's no proof in the reports that the deaths were caused by the energy drinks.