Family May Be Warming Up to Campbell Sale
As an activist investor takes a stake in Campbell Soup Co., a sale to someone like Kraft Heinz is looking increasingly likely
Cans of Campbell's soup are displayed at a supermarket. The iconic brand has lost its luster in recent years. Photo: Seth Wenig/Associated Press
The pressure is building on Campbell Soup Co. An outright sale of the company may be difficult to resist.
Activist investor Daniel Loeb’s Third Point has taken a stake of more than $300 million, around 2.5% of the company, The Wall Street Journal reported Tuesday. The fund hasn’t commented on its motivation but it will likely push for a sale, perhaps to a well-known industry consolidator like Kraft Heinz. For all shareholders, this looks like the best way out of a tough situation.
Campbell’s chief executive stepped down in May following a troubled tenure. The company’s forays into fresh foods through pricey acquisitions fared poorly, as have its famous soups. The acquisition of Snyder’s-Lance at the end of last year left Campbell heavily indebted and needing to cut costs. Shares were down by nearly a third in 2018 before rebounding sharply in recent weeks on rumors of a possible sale
Campbell’s interim chief executive and its board are conducting a comprehensive strategic review and have promised to report back on their findings by the end of August. The company also will report earnings during the month.
It is difficult to see what strategic alternatives would appeal to shareholders more than selling the company. Campbell could sell off the fresh food brands it has acquired, including smoothie and carrot maker Bolthouse Farms, but they are unlikely to fetch a great price. The company has already written down the value of these business by over $1 billion since acquiring them.
Fresh investment also is needed to revitalize Campbell’s core soup line, but resources to achieve this are scarce. With the company’s net debt standing at 4.8 times earnings before interest, taxes, depreciation and amortization, cost cutting is the current priority. The easiest way to do that is through a merger that eliminates overhead and finds synergies. An outside party could also bring money and fresh thinking.
The Dorrance family, who own 41% of the company and are descended from the inventor of Campbell’s condensed soup formula, historically hasn’t been supportive of deals for the entire company. But at the end of the day Campbell’s board has a fiduciary duty to all shareholders, not just those with an emotional attachment to the brand. An outright sale grows ever more likely.
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