Monster Beverage Corp. has agreed to acquire out of bankruptcy its smaller rival Bang Energy after the drinks giant played a role in that company’s demise.
In a filing last week with the bankruptcy court, Monster
MNST,
-0.85%
said it would pay $362 million for Bang’s assets, which include its energy drinks and a facility in Phoenix, AZ.
Bang Energy, which is owned by Florida-based Vital Pharmaceuticals, filed for bankruptcy last October after it was sued by Monster for false advertising and other alleged misconduct with a California jury awarding Monster $293 million.
Monster brought the suit in 2018 on the grounds that Bang Energy was making misleading claims about the physical and mental health benefits of its performance drinks. In April, it was ordered to stop marketing drinks as containing “Super Creatine,” as Reuters reported.
Monster had argued that Bang Energy’s drinks do not contain Creatine, which is a substance used in workout supplements, and that “Super Creatine” offered zero health benefits. Bang Energy had claimed its “miracle drink” could “reverse mental retardation” and help cure neurological disorders.
The deal announced Monday is subject to the approval of the bankruptcy court.
“While Monster is hopeful that the transaction will be completed, there is no guarantee that it will receive Bankruptcy Court approval,” the company said Monday.
That’s because the deal is pending a review by the Federal Trade Commission, which sent a second request to Bang Energy and Monster on June 22 seeking more information about the planned acquisition.
Bang Energy has been in business since 1993, developing performance beverages, supplements and workout products, including Meltdown, Quash, Vooz and Redline.
But the company became mired in lawsuits, including one filed by PepsiCo Inc.
PEP,
+0.21%,
over a distribution deal that went wrong. In bankruptcy documents, the company included a $115 million settlement with PepsiCo among large unsecured debts.
Its legal challenges have also continued, according to the Wall Street Journal. In March, Bang Energy sued its ousted chief executive Jack Owoc, for allegedly refusing to cede control of the company’s social-media accounts on Twitter, Instagram and TikTok, the paper reported.
If the deal materializes — and there are many risks that it may not go through besides regulatory ones — it would be slightly accretive to per-share earnings by about 1% to 2%, according to JP Morgan analysts.
That’s assuming margin improvement at Vital Pharmaceuticals to about 15% of EBIT (earnings before interest and taxes) and cost synergies.
“This would be our best estimate, as the structure of this transaction remains fairly uncertain and given the ongoing steep downward trajectory of the Bang brand and MNST management ultimate plan for the brand and assets,” they wrote in a Friday note to clients.
“An acquisition of VPX assets would also come with a large, state-of-the-art manufacturing facility in Arizona, which could be used to produce some of MNST’s products.”
Among the outstanding questions are whether Monster would try to stem declines in the sales of Bang Energy drinks or discontinue them, and how it would handle distribution, either by sticking with its own main distribution partner, Coca-Cola Co.
KO,
+0.60%,
or using an independent distributor, said the note.
Bang Energy has been on a steep downward track with sales through June 17 down about 54% from the year-earlier period, based on NielsenIQ estimates.
Monster has struggled too in the current inflationary environment. Fourth-quarter earnings fell short of estimates and the once-highflying company announced price increases and a stock split.
The stock was down 0.8% Monday and has gained 12% in the year to date, underperforming the S&P 500
SPX,
+0.12%,
which has gained 16%.
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