Coca-Cola is planning to release energy drinks under its own brand name. That's bad news for Monster Beverage Corp.
Monster's stock tumbled as much as 12 per cent to US$49.42 on Thursday, the biggest intraday slide in more than eight months for the energy-drink producer.
The plunge came after Monster said on an earnings call late Wednesday that it has engaged in arbitration with Coke over the company's plans to produce its own line of drinks.
The twist? Coke owns more than 18 per cent of Monster, and distributes its products.
The Atlanta-based company took a stake in Monster in 2014 with the goal of increasing exposure to rising demand for energy drinks.
Monster, based in Corona, California, said the companies' deal "restricts Coca-Cola from competing in the energy drink category with certain exceptions."
"We believe that the exception does not apply," Monster chief executive officer Rodney Sacks said on the conference call, adding that Coke had delayed the launch of the products until April.
Coke confirmed that it has plans to produce Coca-Cola Energy and a zero-sugar version of the drink and that arbitration was filed.
"We value our relationship with Monster. As in any commercial relationship, we will abide by our contractual obligations," the company said in a statement.
Coke is on a mission to become a "total beverage company" and has moved to diversify its product portfolio as consumers increasingly turn away from sugary drinks.
Energy drinks are a faster-growing category, but rather than make Coke branded products, the company should consider buying Monster outright, according to Ken Shea, an analyst at Bloomberg Intelligence. He said the move indicates Coke isn't happy with the partnership.
"The potential gain is not worth risking a good alliance," he said.