The cola giant has seen its soda sales slow down for the third straight year, with the company missing its targets last year. Acquiring Monster will give Coca-Cola access to the largest player in the energy drink sector, helping it offset losses it's seeing with its own beverages.
As part of the deal Coca-Cola will transfer ownership of Coke's energy drink business to Monster, which includes brands like NOS, Full Throttle and Mother. In return, Monster will transfer its non-energy drink business, including Hansen's Natural Sodas and Peace Tea, to Coca-Cola.
Coca-Cola will take on some Monster distribution relationships and the companies will cooperate with each other on international expansion plans.
Investors reacted positively to the acquisition, with Monster's stock price rising more than 20 percent while Coca-Cola stock was up one percent.
"We're impressed with Monster's performance today and are confident in Monster's ability to perform over the long term," Muhtar Kent, Coca-Cola's chief executive and chairman.
The deal includes an option for Coca-Cola to up its stake to 25 percent through purchases on the open market, or through a negotiated transaction with the company. But the company cannot extend its stake beyond that for four years without Monster's approval.
Kent did not comment on whether the company had tried to acquire all of Monster.
"That's not really relevant right now," he said.
Monster founders, Rodney Sacks and Hilton Schlosberg, were looking to acquire a packaging business but after failing to do so, they acquired the debt-laden soda maker Hansen Natural Corp. in 1992. After revamping the company's energy drink, the two partners have emerged as billionaires.