Is Campbell Soup heading for a sale?
The heat in Campbell Soup's kitchen is rising. The iconic food maker is struggling to stay relevant among today's consumers who are increasingly leery of packaged foods while also trying to appease Wall Street's concerns about its disappointing financial performance.
The road ahead for the Camden, New Jersey-based company, which is in the midst of conducting a strategic review of its operations, won't be easy given the declining sales in its core soup business and struggles in its other divisions that were expected to pick up the slack.
Billionaire activist investor Daniel Loeb has joined forces with George Strawbridge Jr., grandson of condensed soup inventor John T. Dorrance, to demand that Campell Soup sell itself. Through his Third Point hedge fund, Loeb has acquired a 5.65 percent stake in Campbell, which is controlled Dorrance's descendants. He has reportedly met with Campbell interim CEO Keith McLoughlin to press his case.
The Dorrances have balked at selling Campbell in the past and have shown no indication that the majority of them have changed their view. Forbes estimates the family's fortune at $17.1 billion.
'We see a very low likelihood of an outright sale of Campbell Soup given the high family ownership and strong regional ties to the Philadelphia area (e.g., descendants of founder John Dorrance collectively own roughly 50% of the company individually or in voting trusts)," wrote RBC Capital Markets analyst David Palmer in a recent note to clients. He rates the stock as "sector perform."
A more likely scenario would involve Campbell unloading its money-losing Campbell Fresh business, which includes Bolthouse Farms, a provider of premium beverages, salad dressings and carrot snacks that it acquired for $1.55 billion in 2012, so that it can focus on snacks and meal preparation, according to Palmer.
However, that strategy has its share of risks. Campbell acquired snack company Snyder's-Lance for $6.1 billion in December, its largest-ever acquisition. Integrating the maker of pretzels and other treats has proven to be more difficult than Campbell expected. It originally forecast Snyder's-Lance to add to 2019 earnings, but now it expects the deal to dilute earnings because costs unexpectedly rose while selling prices fell.
Furthermore, the Dorrances might not be keen on selling shares of Campbell Soup, which have plunged more than 12 percent this year and are 40 percent below their highs. Third Point didn't respond to requests for comment for this story. Campbell will announce its decision on Aug. 30 when it reports quarterly results.
In a statement to CBS MoneyWatch, Thomas Hushen, a spokesman for Campbell, said the company's board is "is conducting a comprehensive strategic and operational review of the business, including the composition of its entire portfolio [and will] examine all potential paths forward."