Campbell’s not so appetizing for Kraft Heinz

Bloomberg Skip the soup. While it’s no secret that Kraft Heinz investors have been urging the ketchup giant to look at deals as a way to bolster its languishing stock price, Campbell Soup shouldn’t look appetizing, according to analysts.

This comes after a June 22 New York Post article said the ketchup giant, dually based in Pittsburgh and Chicago, was eyeing the New Jersey soup company in a possible transaction.

While a Kraft Heinz acquisition of Campbell Soup may add to its bottom line, analysts say, the soup maker lacks international appeal and has its own deal integration issues to contend with after its acquisitionof Snyder’s-Lance.

Even if a deal could provide approximately 10 percent accretion to Kraft Heinz, Campbell “does not provide international routes to market,” Wells Fargo analyst John Baumgartnerwrites in a note.

In addition, the retailers’ prioritization of private label, in a category that isn’t showing growth, may pressure Campbell’s “hallowed” soup margins, he says. In a deal, Mr. Baumgartner estimates synergies topping out at 8 percentof Campbell’s revenue.

The bottom line is that Wells Fargo doesn’t see Campbell “structurally improving” Kraft Heinz’s business. Kraft Heinz could even face multiple contraction.

JPMorgan analyst Ken Goldman views it differently. He sees a potentially strong profit accretion of at least 20 percent with the use of Campbell as a “steppingstone” to a larger deal in the future. He also pointed out that 3G Capital, a major investor in Kraft Heinz, has historically coveted strong brands, and the iconic Campbell Soup label transcends mere food packaging thanks to artist Andy Warhol.

There is some agreement between the analysts, as Mr. Goldman says Campbell doesn’t appear to fit Kraft Heinz’s desire to buy “growth-type assets that can expand internationally.” Furthermore, Campbell is “highly exposed” to direct store delivery, which in Mr. Goldman’s view is less valuable than it used to be.

Kraft Heinz shares closed Monday at $63.32, up 11 cents. Campbell’s shares closed at $42.23, up $3.63.