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 debt-laden soda-maker Hansen Natural Corp. in 1992.
Two decades, a name change and a whole lot of caffeine later, the partners have emerged as billionaires as their company, Monster Beverage Corp., agreed to sell a 17 percent stake to Coca-Cola Co. on Thursday for $2.15 billion, sending its shares as high as $97.48 in extended trading in New York.
The deal gives Coca-Cola greater exposure to the energy drinks market, one of the fastest-growing segments in the beverage industry, having doubled in sales since 2007, according to Euromonitor International Ltd. The carbonated soft drinks category, which includes offerings from PepsiCo Inc. and Coca-Cola, expanded just 0.3 percent in 2013.
"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, according to the website Caffeine Informer.
Sacks, 64, serves as chairman and controls 9.4 million shares of the Corona, Calif.-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 an international wealth ranking.
Sacks and Schlosberg met in South Africa, they told Businessweek in 2005, and decided to go into business for themselves in 1989. At the time, South African-born Sacks, now a U.S. citizen, was working for executive recruiter Confidential Assignments in Orange County, Calif. Schlosberg, a U.K. citizen, was working for J. Bibby & Sons, a British conglomerate.
The pair raised more than $5 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 $17.1 million in sales and net income of $565,000. The pair bought Hansen for $1.71 million and assumption of $12 million in debt.
Seeing the success of Austria-based Red Bull GmbH, 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," BevNet's Klineman said. "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 introduced 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 percent share of the energy drink market to Red Bull's 33.9 percent, 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, Bloomberg News reported in January.
Monster's caffeine levels have 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 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," Klineman said.
In an earnings call with analysts in February, Sacks opened the call by reiterating energy drinks are safe. A 16-ounce cup of coffee served by Starbucks Corp. has more than double the caffeine of a 16-ounce Monster, he said.
Business on 08/16/2014