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Monster (MNST) Could Get 24% Premium in Potential Takeover - Bloomberg

March 12, 2012 10:15 AM EDT
Monster Beverage (Nasdaq: MNST) is catching some interest early Monday following M&A chatter.

According to Bloomberg, the maker of Monster Energy drinks as well as Hansen Natural could be the target of an acquisition amid one of the highest valuations in its category. Monster shares doubled in 2011 leading to a stock valuation at 20 times EBITDA, which is the highest multiple of all North American soft drink makers with a market cap of greater than $500 million. Comparably, Coca-Cola (NYSE: KO) boasts a multiple of 14 times with rival PepsiCo (NYSE: PEP) at 9.9 times.

Despite Monster's market cap surging past $10 billion, earnings are expected to grow an additional 70 percent in 2012, reports Bloomberg.

Some analysts think Monster could fetch $74 per share, a 24 percent premium to last Friday's close just under $60. Among potential buyers, Goldman Sachs and Credit Agricole believe Coca-Cola may be the more important interested party as it looks to capture more of the alternative beverage industry in the U.S. market. In addition, Coca-Cola could use its strong distribution network to broaden Monster's prospects overseas.

In each of the past five-years, Monster reported average revenue growth of 24 percent per year, versus 15 percent and 14 percent for peers Coca-Cola and PepsiCo, respectively. Operating margins of 27 percent in 2011 are also a benchmark for North American beverage companies with market caps over $500 million.

Monster's key ingredient is energy drink sales. According to a Goldman survey, the energy drink category was the fastest growing segment in the U.S. liquid refreshment category, with growth of 11.9 percent on average the last five years.

Whether or not management is looking to sell the company is another thing. Monster's Board is required to evaluate any offers, but may determine it's in the best interest of shareholders to stay the course, a move that has been paying dividends so far.

Shares of Monster are up 0.2 percent Monday morning.


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