Quick Pitch: Monster Beverage (MNST)

Odd-Lot Tender Offer – $680 Upside (at the upper limit)

Monster Beverage Corporation, the powerhouse behind Monster Energy, Bang Energy, Burn and other brands, launched a tender offer to repurchase around 5% of its outstanding shares. The tender range is set at $53-$60 and the stock is currently trading at the lower limit. The offer will most likely end up oversubscribed, however, odd lots (99 shares or less) will be accepted on priority basis. So odd lot holders are risking only $10-$20 per account in order to have exposure to potentially positive share price volatility during the tender period (expiration June 5) or to the final tender price ending up above the lower limit, i.e. an almost free option.

MNST is a $54bn market-cap company, which trades at hefty earnings multiples. Insiders are participating in the tender. Thus, the market is probably pricing the situation efficiently and the final tender price will end up at the lower limit. But with only $10-$20 likely loss and another two weeks left till expiration, I think it’s a bet worth taking.

A few additional details on the setup:

  • The company plans to repurchase 50m-57m shares (around 5% outstanding). Two co-CEOs, who founded the company and together own a 7.7% stake, will offer up to 21.7m shares. Other insiders may also sell up to 0.64m shares. In total, insiders could fill about 40% of the entire tender. The substantial participation from the founders is related to succession planning as one of the co-CEOs said he may resign next year. The other would then be left as the sole CEO of MNST.
  • The other major shareholders include KO (Coca-Cola), which holds a 19.6% stake, and two index funds with a combined ownership of 11%. The index funds will most likely participate in the offer on a pro rata basis. Conversely, Coca-Cola is unlikely to sell its shares. Since investing in MNST in 2014, KO did not partake in the 2016 tender and has only increased its stake so far.
  • The offer is conditioned on financing, but there’s zero risk related to this. MNST intends to fund the repurchase by $2bn cash on hand and $1bn of new debt. MNST has no debt at the moment and generates $1.5bn annual FCF.

MNST background and the previous tender

MNST is a leading player in its niche (energy drinks). It has been generating a consistent double-digit revenue growth, high operating margins (around 30%) and substantial FCF over the last 10 years. The stock has quadrupled over the decade, however the valuation has remained in the range of 30x-40x PE and P/FCF.

The ongoing tender was announced together with Q1’24 earnings, which seem to have been in line with historical trends: revenue and net income increased 11-12% YoY, gross margins improved while the operating margin remained flat.

MNST had already carried out a similar share buyback in 2016. The tender was $2bn (around 6% of outs. shares). Price range was set at $23.7-$26.7/share and got priced close to the upper limit at $26 (contrary to today’s situation, the stock traded at or above the upper limit during most of the tender period). Founders owned 10% of the company and also planned to tender an outsized portion – 17% of their stake. At the time of the previous tender, MNST was trading at a similar valuation multiples to today.

50 Comments

50 thoughts on “Quick Pitch: Monster Beverage (MNST)”

  1. I am not entirely clear what are the tax consequences for the majority of these odd lot tenders? For example the other odd lot tender (SES) seems to have lots of people commenting regarding the adverse tax consequences, is that an exception because of Canadian listing ?

    What are the tax consequences of this one if I am not a US resident ? Is there a general rule one can follow or does it vary case by case and would need to read the docs carefully to deduce this ?

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    • Not official tax advice etc. etc. but as a Canadian, US tenders have been treated as US tenders. I.e. no paid-up capital nonsense, the proceeds aren’t treated partially as a dividend… it’s just a straight up buy and sell with a capital gain.

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  2. Assuming it trades ‘efficiently’, I wonder why it’s currently trading below the lower limit of $53? Surely it should be trading at a premium if anything

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    • There will be heavy proration for most of the people that tender.

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  3. To refresh my memory, at InteractiveBrokers if you try to odd lot out of two different accounts under the same name they will be combined and won’t be treated as odd lots since they go by account tax ID?

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    • I think, if you’re trying to odd lot out of multiple accounts you need to have different clearing firms (not 100% sure if that is the key to doing it but it has worked for me in the past).

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      • yes each broker will aggregate shares per account holder, joint acct counts for both in IBKR at least

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  4. Apparently Vanguard put out this:

    “Please note: The company has stated that the proration exemption only applies to beneficial holders who own 99 shares or fewer combined across all of their accounts and tender all of their shares. Beneficial ownership will be determined by Social Security Number.”

    Can this be enforced across different brokers?

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    • Of course it COULD, it never has been the case tho. Per SSN/per broker.

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      • My odd lot tender of 99 shares with Etrade was prorated at 47%. I also tendered 99 shares at IBKR and Vanguard but those weren’t prorated. Anyone else have this happen?

      • Now we know why Keith Gill is thinking of switching from E-Trade.

      • Philip – let me know if you hear anything from etrade. This is pretty concerning

      • I spoke to Etrade this morning and they said my tender shouldn’t have been prorated and this was a rare error. They are going to correct it and I should see the change in my account in the next day or two.

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    • In the past have anyone tried to tender 99 shares while owning more than 99 shares? Were you treated as odd lot? I am referring to the “…and tender all of their shares” requirement.

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  5. For some reason Schwab isn’t showing MNST on their online corporate actions page. I called and their tender deadline is June 3rd.
    Does anyone know the easiest way to tender at Robinhood? Is is possible without a phone call?

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    • RH will email you tender options after you send them a msg over Help/Chat

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    • did schwab mention they are going to put it online or do we have to call in?

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      • Just spoke to Schwab – last day to buy for tender is Fri 5/31 because they have to be settled for the June 3rd instruction deadline. Instrx need to be called in by 7pm.

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      • I tendered in two accounts online yesterday, nice and easy corporate action tool.

        Bought in my wife’s account this morning, and it’s not showing up in the tool yet.

  6. What should I use as the offering price if wanting to get the maximum dollar amount for my 99 shares?

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    • Select “purchase price tender” or “tender at a non-specified price” depending on the broker to simply go inline to get the maximum dollar amount for your 99 shares.

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  7. With Schwab unless you buy and it settles before the record date it doesn’t show up on the corp. actions page on the web portal so you have to call in. (I have brought this to their attention many times)

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  8. hah and on that note it looks like they fixed it, just got the email and it’s on the page now

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  9. And on that note it looks like they fixed it, just got the email and it’s on the page now. Looks like your efforts paid off!

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  10. The stock continues to fall, now at $51.3, way below the lower limit. Is this normal for the tender of this size? i.e. odd-lots are unable to drive the price upwards and the current price just reflects market expectation that post-tender MNST shares will drop even lower? Any thoughts on this would be appreciated.

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    • Somewhat normal unless the stock is loved by the market and tender is unsuccessful because stock trades above high end (nobody wants to sell lower than the market price).

      CELH has a lot to do with the pullback in this case though, I believe.

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  11. As expected MNST’s tender offer ended up oversubscribed and priced at the lower limit of the tender range ($53-$60/share). An opportune moment to jump into this tender came up last week (I have highlighted this in last weeks’ newsletter) when MNST’s stock price temporarily fell below $51.50/share. Odd-lot holders who capitalized on this, ended up with $150 gain.

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  12. Did Schwab mess up anyone else tender?

    I did it in 3 accounts with them only 1 of the accounts got a full 99 fill, the other 2 they split up 99 shares between the 2 lol

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    • I have Schwab and tendered 99 shares. while waiting, the shares were taken from my account (shown as xxxxx) and then all 99 shares were returned. So none of my shares were accepted. I only had the 99 in one account.

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      • Mine were tendered fine with Schwab – 3 diff accts/SSNs. Call their Corp Actions team – (800) 323-4332

      • I had 99 shares in Schwab that were tendered properly. But I also had 99 shares in eTrade that did not — there are now 42 shares. ETrade’s form was quite difficult to parse and I had to call a representative to complete it in the backend.

  13. Anyone have experience with Canadian brokers charging withholding tax on these tender proceeds? Only 1 of 3 did so, despite having my W-8BEN.

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    • I’ve had issues with IB withholding taxes on liquidation proceeds less than paid up capital. It took 4 months and about 10 communications to get them to refund the tax. It might just be an error in the classification of what the proceeds represent. But on a stock as large as MNST that seems odd.

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    • So the issue had nothing to do with W-8BEN. It was that the proceeds can be considered a dividend (subject to withholding tax) unless I fill a form describing why I satisfy the Section 302 tests of the US tax code. Odd lots should always satisfy the Section 302 test because they result in a total exit of the position. I guess an exception would be if you or family members held a lot more than 99 shares or calls in some other account. Seems some brokers never have issues with misclassification of odd lot tenders.

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  14. So I did this in 2 IB accts same SSN both tendered and filled. Schwab 4 accounts 3 same SSN # and called in to corp actions desk since wasn’t on the site at the time… ends up they pro rated they totalled up share count in 3 accounts with same SSN and submitted that way against my instructions and fully filled the other tendering as the odd lot. Did it with 3 other brokers non-retail, all fully filled…lesson learned, not calling in corp action in more than one account again at Schwab. When took it up the chain with Schwab they pulled “we followed” the regulatory card…

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    • I thought IB normally consolidates accounts with same SSN when dealing with odd-lot tenders.

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  15. I heard from someone that IB consolidated their previous odd-lot tender (not MNST)

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  16. One general question about odd-lot tenders. does anybody knows, if I have a shared account with my wife in IB, if I can tender 198 shares (99 hers, 99 mine) and get the odd-lot priority respected? Or do I need to open two separated accounts to do it?
    Thanks!

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  17. Question – I tender my shares on E*trade and got prorated for my 99 shares. (Still own 57 shares)

    Has this happened to anyone else? Every other brokerage I tender this on, my 99 shares were tendered and okay.

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    • I was told etrade is aware of this situation and is going to work on fixing it. Whatever that means exactly lol

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  18. Regarding E*Trade. I was prorated also. I spoke with Clyde at E*Trade today (800-661-4587 corporate actions) who was very helpful. He thinks it is possible E*Trade is not doing a batch correction, rather you have to tell them and they will submit it for correction. I’ll follow up end of week and see if it has been corrected. He made it sound like it’s an E*trade/Monster issue and not specifically related to my account.

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    • They are still working to clear it up in my account. The shares are gone but now I have a short position of 5 shares which is from the loss on the 47 shares that were prorated. They assured me they are working to clear those from my account.

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  19. WellsTrade submitted my “no-bid” request at the UPPER range. So I now I’m playing phone tag with a supervisor since they owe me around $400. Good thing there’s a recorded line.

    lesson for next time: don’t say “no bid”. specify a number.

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