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Coca-Cola’s Stake Buy Makes Monster Founders Billionaires

August 15, 2014

Coca-Cola’s Stake Buy Makes Monster Founders Billionaires

Monster has 34.3 percent share of the energy drink market to Red Bull’s 33.9 percent, according to a Monster presentation to investors in January. Last year, Monster started a protein drink, Muscle Monster. In a nod to its natural soda roots, it introduced a kale flavored Hansen-brand soda earlier this year. Photographer: Patrick T. Fallon/Bloomberg

Rodney Sacks and Hilton Schlosberg wanted to get into the packaging business. Frustrated in their attempt to find a company to buy, the partners took a tip from an investment banker and purchased debt-laden soda maker Hansen Natural Corp. in 1992.

Two decades, a name change and a whole lot of caffeine later, the partners have emerged as billionaires as their company, Monster Beverage Corp. (MNST:US), agreed to sell a 17 percent stake to Coca-Cola Co. (KO:US) yesterday for $2.15 billion. The stock jumped 30 percent to $93.49 at 4:15 p.m. today in New York.

The deal gives Coca-Cola greater exposure to the energy drinks market, one of the fastest-growing segments in the beverage industry, having doubled in sales since 2007, according to Euromonitor International Ltd. The carbonated soft drinks category, which includes offerings from PepsiCo Inc. (PEP:US) and Coca-Cola, expanded just 0.3 percent in 2013.

“If you look across mature beverage categories, it’s impossible to find someone with a growth rate that does not let up like Monster Beverage’s,” said Jeffrey Klineman, editor of trade publication BevNet.

The company’s main product, Monster Energy, has sold more than 10 billion units since its introduction in 1997. It has almost four times the amount of caffeine as Coke, according to the website Caffeine Informer.

“Our primary objective is to end up with Monster as a fully global brand,” said Schlosberg, in an analyst call this morning. The energy industry, he said, will “become an industry brought down to Red Bull and ourselves.”

New Billionaires

Sacks, 64, serves as chairman and controls 9.4 million shares of the Corona, California-based company. Vice Chairman Schlosberg, 61, owns more than 9 million shares. The stock is held in their own names, in grantor retained annuity trusts and in almost a dozen other entities. Neither of the partners has ever appeared on an international wealth ranking.

The partners last year distributed 7.6 million shares to grantor retained annuity trusts. They’re credited with the shares because the trusts were created for the benefit of their families, according to a filing with the U.S. Securities and Exchange Commission. Both have sold more than $180 million in stock since 2004, according to data compiled by Bloomberg.

Phone and e-mail messages to Monster press representatives weren’t immediately responded to for comment. Spokesman Roger Pondel said in an e-mail in March that Sacks disputed Bloomberg’s calculations of his net worth, saying his shares in the company would be worth far less after taxes if he sold the shares.

South Africa

Sacks and Schlosberg also are listed as the general partners in Brandon I and Brandon II, limited partnerships that hold 11.7 million shares over which the executives maintain voting control. They don’t own any of the shares in the two partnerships, having sold their stake starting in 2005, Pondel told Bloomberg News in 2012.

Sacks and Schlosberg met in South Africa, they told Businessweek in 2005, and decided to go into business for themselves in 1989. At the time South African-born Sacks, now a U.S. citizen, was working for executive recruiter Confidential Assignments in Orange County, California. Schlosberg, a U.K. citizen, was working for J. Bibby & Sons, a British conglomerate.

The pair raised more than $5 million from friends and family, bought a publicly traded shell company and spent two years looking to purchase a business to operate.

Name Change

On advice of a banker, they decided to buy family-owned soda maker Hansen Natural. Hansen at the time had $17.1 million in sales and net income of $565,000. The pair bought Hansen for $1.71 million and assumption of $12 million in debt.

Seeing the success of Austria-based Red Bull GmbH, they introduced Hansen-branded energy drinks in 1997. The company’s share price barely budged. “It’s not like the company has been an overnight success,” said BevNet’s Klineman. “They played with a bunch of different formulations. The first Hansen energy drink offering wasn’t well received.”

Fortunes shifted for the better in April 2002, when the pair introduced Monster, an energy drink priced the same as Red Bull in cans twice the size. The Monster brand was so successful that the company changed its name to Monster Beverage in January 2012.

Monster has 34.3 percent share of the energy drink market to Red Bull’s 33.9 percent, according to a Monster presentation to investors in January. Last year, Monster started a protein drink, Muscle Monster. In a nod to its natural soda roots, it introduced a kale flavored Hansen-brand soda earlier this year.

Congressional Spotlight

Coca-Cola explored buying Monster in 2012 and found the price too high, according to a person familiar with the matter who asked not to be named, Bloomberg News reported in January.

Monster’s caffeine levels have also sparked investigations by state and federal officials into any connection energy drinks may have with unusual deaths. Countering the allegations has drawn Sacks more into the spotlight, including testifying before a Congressional panel on energy drinks last summer.

“He has been a very good advocate good advocate for the brand, using his shareholder meetings as ways to address a lot of the regulatory concerns,” said BevNet’s Klineman. In an earnings call with analysts in February this year, Sacks opened the call by reiterating energy drinks are safe. A 16-ounce cup of coffee served by Starbucks Corp. (SBUX:US) has more than double the caffeine of a 16-ounce Monster, he said.

The energy surge also has made a billionaire of Russell Weiner, the 44-year-old founder of Las Vegas-based Rockstar. Weiner controls 85 percent of the closely held company, which accounted for 4 percent of the $27.5 billion global energy drink market last year, according to Euromonitor.

To contact the reporter on this story: Brendan Coffey in Boston at bcoffey10@bloomberg.net

To contact the editors responsible for this story: Peter Newcomb at pnewcomb2@bloomberg.net Linus Chua


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Companies Mentioned

  • MNST
    (Monster Beverage Corp)
    • $89.78 USD
    • -0.66
    • -0.74%
  • KO
    (Coca-Cola Co/The)
    • $42.05 USD
    • 0.26
    • 0.62%
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