M&A
Campbell Soup reportedly mulling acquisition proposal, although would possibly retain Snyder’s-Lance
Media reports also state that General Mills has also purportedly thrown its hat into the ring for Campbell Soup.
Both Kraft Heinz and Campbell remain tight lipped over the potential deal.
Trimming down underperforming brands
Campbell posted a 15% sales increase for Q3 2018, mainly driven by Snyder’s-Lance and Pacific Foods. However, its organic sales only increased by 1% without these acquired brands.
“[Campbell’s] Pepperidge Farm (producer of Milano cookies) has also been doing very well. Goldfish is stealing market share and that’s been a bright spot of Campbell,” said Brittany Weissman, consumer analyst at Edward Jones.
Other analysts show little appetite for the acquisition
Analysts at several investment banking companies believe the takeover of Campbell will not ultimately benefit Kraft Heinz.
J.P. Morgan said: “We would be surprised if Kraft Heinz wanted Campbell Soup; [it's] a company that will not solve Kraft Heinz’s growth problems and is facing numerous internal challenges.”
Stifel commented: “While Campbell Soup no doubt brings significant synergies to Kraft Heinz, we do not believe it has the international presence and growing categories necessary to justify an acquisition by the company.”
Alexia Howard, research analyst at Sanford Bernstein, also noted Kraft Heinz would be better served by snapping up a consumer products company with more overseas exposure, such as Mondelēz or PepsiCo.
She noted a potential sale could be a result of Campbell’s strategic review it announced recently.
At an earlier event, Anthony DiSilvestro, Campbell’s chief financial officer said: “We’ll be reviewing all aspects of our strategic plans and portfolio composition [in Q4, 2018]. We anticipate that our review, which will take several months to complete, will lead to changes designed to improve our operating performance and create long-term shareholder value.”
“Campbell has some challenges with its soup, V8 and C-Fresh businesses, so I don’t think the outcome will be an outright sale of the entire company,” said Weissman. "[We expect to see] Campbell trim down some of its underperforming brands… but there is a number of different routes they could go.”
She added the Dorrance family, which owns 40% of Campbell’s share, maintained the company as a public entity, meaning a public company like Kraft Heinz has a competitive advantage over a private company for the acquisition.
M&A Renaissance
As big companies continue to fast track growth by acquiring emerging snack brands, it has been rare to see one swallow a major player until recently. Just yesterday, Conagra announced it had agreed to acquire Pinnacle Foods for $10.9bn.
Weissman noted these large acquisitions signal that the food industry is ripe for consolidation.
“We will probably see more M&A in the food space [as] there are many opportunities open for consolidation. What we have seen through some of the deals is that some companies are willing to pay for growth because their sales have been sluggish,” she said.
“We may also start to see some shifts where these companies want growth, but also want to be more disciplined with pricings so they can get more scale in the acquisition.”
Weissman added: “Companies with the strongest brands, biggest scale and most flexibility are going to be the winners in longer term.”
