Monster and Constellation Merger Talks Are Continuing

Synopsis: Constellation Brands and Monster Energy could potentially merge, giving rise to a nearly $90 Billion company. The talks regarding this merger are progressing between the two companies and further updates are yet to arrive. 

The alcohol industry leader Constellation Brands and the energy drink industry player Monster Energy could potentially merge into a solitary entity gaining a value of nearly $90 billion. 

Last month Monster announced the acquisition of CANarchy Craft Collectives, a brewery company for $330 million. This led to an interpretation that Monster’s apparent merger with Constellation Brands had reached a dead end and the deal was called off. But it seems that this story is not how we are interpreting it. Monster Energy and Constellation Brands are still in talks for a potential merger agreement that might be announced in the upcoming weeks.

Shares of Monster Energy have descended about 8% since Bloomberg News apprised in November that Monster had talks with advisers about a potential merger with Constellation.  

It is still amorphous if the potential deal would be an equitable merger, an acquisition of Monster by Constellation, or even vice-versa. A more negotiable option would be a joint venture or a strategic partnership. 

Monster Energy is the second biggest player in the energy drinks space after Red Bull. It has a diverse portfolio of drinks that include Monster Hydro, Java Monster, Rehab Monster, Dragon Tea, and others, an accumulative of 39 varieties. Monster is also renowned for its numerous sponsorships and its endorsements for extreme sports events like MotoGP, Ultimate Fighting Championship (UFC), Bellator MMA, BMX, and many more. It also sponsors a wide range of championships and has a dynamic presence in the music realm as well. 

Whereas, Constellation Brands is a Fortune 500 Company and has over 100 categories under its umbrella. Its wine brands constitute The Prisoner Wine Company, Robert Mondavi, Simi Winery, Kim Crawford, Ruffino, and Meiomi. Constellation’s beer brands include Corona, Funky Buddha, Modelo Especial, Pacífico, Negra Modelo. The Spirit portfolio comprises Svedka Vodka, Casa Noble Tequila, High West Whiskey, and Tennessee Whiskey.

Each of the brands is an eminent leader in its domains. Both the brands can leverage each other’s strengths to build an alliance and establish a strong position in the beverage sphere. This could forever transform the fabric of the beverage industry. 

Another possibility that we cannot overlook is the possibility of the amalgamation of alcohol, caffeine, and cannabis in different proportions under one roof. Even though this amalgamation is not validated in any way, the possibility of this combination cannot be denied. It can become a reality due to Constellation Brands’ 40% stake in a Canadian cannabis company, Canopy Growth Corporation that sells THC-infused drinks across Canada. But this could be a significant tribulation for Coca-Cola, which is one of Monster Energy’s largest shareholders with about 20% share of the entire company.

Nik Modi, head of the RBC Capital Market analysts’ team expresses his thoughts on the merger. “We see an equal merger as the most likely possibility if an agreement settles, considering that both of the brands nearly have a similar market capitalization, i.e. Constellation Brands at ~$44 billion and Monster Energy at ~$43 billion”, he says. 

“A tie-up in Monster and Constellation would result in a single beverage entity with over $5 billion in EBITDA and over $14 billion in sales. Monster could be less interested in Constellation’s spirits & wine business vs. the beer business in a hypothetical acquisition, given potentially lower synergies in wine and a lower topline growth profile of the business,” said Modi.

Hence Monster Energy might sell off the components of the Constellation Brands portfolio they think are unnecessary, fetching some profits.

A potential alliance “could give the new entity a headstart to serve the soaring U.S. market for low-alcohol drinks,” as per Bloomberg’s analyst Kenneth Shea. Subsequent to the CANarchy deal, “we anticipate the strategic move into the saturated domestic alcoholic-beverage market as risky, as it will have to surge the amount of expenditures to expand operations domestically and battle with bigger resource-rich companies.”

It seems that all of the discussions and talks revolving around the mergers will be answered soon, even though none of the representatives on behalf of both the brands i.e. Monster Energy and Constellation Brands are not willing to comment about the merger.