Why Monster Beverage Stock Declines Today

What happened

Actions of Monster Beverage (NASDAQ: MNST) traded 6% less at noon, EDT, as a soft drink giant PepsiCo (NASDAQ: PEP) announced an acquisition of $ 3.85 billion in the energy drinks sector.

So what

Pepsi taps into the growing energy drink market with a takeover of the longtime energy brand Rockstar Energy Beverages. Pepsi aims to accelerate Rockstar's growth through its global distribution network and massive marketing strengths, and could also integrate some of Rockstar's energy drink innovations with Pepsi's own brands, such as Mountain Dew. The deal is expected to close in the first half of 2020, but will not have a significant impact on Pepsi's financial results until next year.

Monster investors shivered at the prospect that another well-to-do rival entered the energy drink market.

Image source: Getty Images.

Now what

It is not the first time that Pepsi has plunged a toe into the waters of energy drinks, but previous attempts have gone largely unnoticed. Grabbing Rockstar's 5.5% share of the U.S. market is a more serious attempt.

At the same time, the splashing entry of Pepsi could motivate partner Monster Coca Cola (NYSE: KO) to simply acquire the leader in energy drinks. Coke already owns a 19% stake in Monster and has managed the company's distribution network since 2008. The next step with a full takeover would not be much of a surprise, and Pepsi's presence may well be the last drop that initiates this transaction.

It is speculation, of course. What we have today is a more powerful infrastructure behind a reasonably successful rival, and the negative reaction of the market makes sense from this perspective. I would always say that long-term investors should take a closer look at Monster at a lower buyout price, especially if they expect a buyout by Coca-Cola someday soon.

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