Coca Cola has paid $US2.15 billion to gain traction in the booming energy drinks market. Photo: Reuters
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 a debt-laden soda maker in 1992 for $US13.7 million.
Two decades and a whole lot of caffeine later, the partners have emerged as billionaires as their company, Monster Beverage, agreed to sell a 17 per cent stake to Coca-Cola for $US2.15 billion ($2.3 billion), sending its shares as high as $US97.48 in New York trading.
The deal gives Coca-Cola greater exposure to the energy drinks market, one of the fastest-growing segments in the industry having doubled in sales since 2007. The carbonated soft drinks category, which includes brands such as Coca Cola, Pepsi and Fanta, expanded just 0.3 per cent last year.
While the global drinks giant has helped distribute Monster in the US and Canada since 2008 and owns smaller brands such as Full Throttle, Burn and Mother, it doesn't have its own major energy drink.
"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.
Sacks, 64, serves as chairman and controls 9.4 million shares of the 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 any international rich lists.
Sacks and Schlosberg met in South Africa and decided to go into business for themselves in 1989. At the time, South African-born Sacks, now a US citizen, was working for an executive recruiter in California. Schlosberg, a UK citizen, was working for J. Bibby & Sons, a British conglomerate.
The pair raised more than $US5 million from friends and family, bought a publicly traded shell company and spent two years looking to purchase a business to operate.
On advice of a banker, they decided to buy family-owned soda maker Hansen Natural. Hansen at the time had $US17.1 million in sales and net income of $US565,000. The pair bought Hansen for $US1.71 million and assumption of $US12 million in debt.
Seeing the success of Red Bull, 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 launched 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 per cent share of the energy drink market to Red Bull's 33.9 per cent, 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.
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.
Monster's caffeine levels have also sparked ongoing 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 US Congressional panel on energy drinks last summer.
"He has been a very 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 473 ml cup of coffee served by Starbucks has more than double the caffeine of a Monster the same size, he argued.