Why Campbell should consider selling itself
As it reviews its options, a quick sale to someone like Kraft Heinz offers advantages
Campbell Soup Co. has been one of the worst performing food companies over the past two years. If a quick way out is available, the family members who control the firm should give it serious consideration.
Campbell’s stock has rebounded sharply over the past month on speculation that the company is considering an outright sale, perhaps to an industry giant like Kraft Heinz.
This wouldn’t be entirely surprising. When Campbell’s Chief Executive Denise Morrison stepped down in May, the company said it is reviewing its entire portfolio, that all options are on the table and that “there are no sacred cows.”
The company said it would report back on the results of the review by the end of August. The current interim CEO told employees in May that his strategy isn’t to sell the company, The Wall Street Journal has reported.
Campbell could work to optimize its existing portfolio. Most likely this would consist of selling off underperforming fresh food brands like Bolthouse Farms while reinvesting in faster-growing snack lines like Pepperidge Farm and the recently acquired Snyder’s-Lance.
Ideally, the company would also bring some fresh thinking to its core canned soup brand, perhaps by introducing contemporary elements like organic ingredients. This would be along the lines of what Conagra has achieved with dated frozen brands like Banquet. Campbell might even consider a refresh of their once iconic, now tired can design.
But this will be a long and drawn-out process with uncertain prospects for success. Campbell’s ability to invest for growth will also be constrained by the imperative to reduce its debt overhang. The Snyder’sLance acquisition raised the company’s net debt to $9.6 billion at the end of the most recent quarter, from $3.1 billion a year earlier.
The company said at the time of the deal that it would reduce the ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization from 4.8 times to 3.0 times by 2022. On a conference call following Ms. Morrison’s departure in May, Chief Financial Officer Anthony DiSilvestro reiterated that “our priority is to de-lever the balance sheet following the Snyder’s-Lance acquisition.”
Against that backdrop, an outright sale starts to look more appealing. The conventional wisdom has been that Campbell would be a difficult company to sell due to the high ownership stake of the Dorrance family who between them hold 41% of the company.
But these family members have just been through a traumatic period of watching their wealth evaporate. The company’s shares fell by 44% over the two years through the end of May. They have since risen by 23% on reports of a possible sale. At just 15 times forward earnings currently, compared with a five-year average of 17.5 times, there could be upside left in the shares if a sale does happen.
John Dorrance invented the formula for Campbell’s condensed soup over 120 years ago. For his descendants, it may finally be time to move on.