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A Monster Tender Offer – Merger Arbitrage Mondays

  • May 27, 2024

Companies repurchasing their shares through a tender offer can sometimes present interesting opportunities and there is one such opportunity playing out right now that I thought might be worth mentioning in this Merger Arbitrage Mondays post before we get to our regular programming.

Fresh out of school, I started my career at a company that used to crunch large amounts of point-of-sales data acquired through partnerships with companies like Safeway and Whole Foods and then supply value-added reports to natural and organic food companies. This was an area that AC Nielsen for some reason had decided to ignore and the company ended up building a nice business in this niche. I came across natural juice and soda companies like Odwalla (acquired by Coke) and Hansen’s Natural during my stint there.

Hansen’s Natural, a sleepy natural soda company out of California went public in 1990 but didn’t rise to prominence until it launched a popular energy drink called Monster. Their new energy drink was a roaring success and eventually dwarfed sales from the natural soda business. The company ended up renaming themselves as Monster Beverage Corporation (MNST) in 2022 and the stock ran up more than 10 fold in the 2010s like a teenager who had consumed too many cans of energy drinks.

Disruption doesn’t just happen at technology companies but businesses of every flavor are susceptible to their business model being copied. The company 5-Hour Energy, which launched in 2004 had grown to estimated sales of $1 billion by 2012 despite lawsuits and multiple articles about how these caffeine laden products were potentially harmful for consumers.

The company that significantly disrupted Monster was Celsius Holdings (CELH) and the five year price chart shown below highlights just how much Celsius has outperformed Monster in recent years. Celsius stock is up more than 6,778% compared to a gain of 66% for Monster. I often find Celsius drinks occupying prime end-cap real estate in my local Costco.

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