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Monster (MNST) and Constellation (STZ) merger talks progress

00:08, 18 February 2022

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Monster drink cans - Photo: Unsplash

Energy drink label Monster (MNST) and alcohol industry player Constellation Brands (STZ) made strides toward a merger this week, as first reported by Bloomberg, with the two companies having potential to shake up the beverage industry.

It was not immediately clear if a 50/50 merger, an acquisition of Constellation by Monster, which boasts Coca-Cola (KO) as a significant stakeholder, or the inverse scenario were the most likely means of combination. A less intensive arrangement would be a partnership or joint venture, and those remain possibilities as well. 

Though Constellation has the higher enterprise value, near-even market capitalisations in the mid-$40bn (£29.39bn) range for both companies might mean that a merger would be the tidiest transaction. Combined, the two companies’ revenue could represent around $14bn annually.

Earlier this year, Monster acquired the craft beer collective CANarchy. It now has its sights on some form of combination with Constellation, whose brands include Corona, Modelo, Casa Noble and Mi Campo. Corona and Modelo have been unusually solid performers in the beer sector.

A green twist, but not a lime

Also included in Constellation’s portfolio is a sizable share of Canopy Growth Corp (CGC)., which manufactures and sells cannabis-infused, ready-to-drink products across Canada.

There was no firm indication of any specific combination of alcohol, caffeine and cannabis emanating from the business discussions, but such novelties may be headed to market sooner than later as soft drink companies lose ground to water and other hydration choices in the US, and beer companies seek innovative ways to stimulate sales as they did during the hard seltzer craze. 

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Thus far, however, Constellation’s involvement with Canopy has been less than fruitful. 

“To see what a drag this pot company is having on Constellation Brands, in its updated full-year earnings guidance Constellation estimates it will lose between 10 cents and 25 cents per share. But if you mercifully remove Canopy from the equation, it is guiding toward a profit of $10.50 to $10.65 per share,” wrote Rich Duprey of the Motley Fool last month.

Larger figures loom

While neither Monster nor Constellation could be considered lightweights within their given sectors, they pale in comparison to beverage leviathan Coca-Cola and the US federal government.

Coca-Cola’s robust distribution network could factor into any pact and their ambitions in the potentially involved spaces here – most notably energy drinks and beer/hard seltzer – could shape substantial portions of the deal and its terms.

Adding further intrigue to matters is US President Joe Biden’s administration, which has been pursuing efforts to increase competition and parity in a growing number of market sectors. That includes beer, wine and spirits, as outlined in a 63-page report released earlier this month. Further consolidation would surely face some level of scrutiny, though it was not yet apparent how this particular deal would unfold.

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