Campbell Soup plans to sell international and fresh food businesses, shares fall
Campbell Soup revealed its plans to turnaround the company after announcing a top-to-bottom strategic review in May.
The company is selling its fresh food business, including Bolthouse Farms, as well as its Arnott's and Kelsen brands overseas.
Activist shareholder, Dan Loeb is calling for Campbell to sell itself.
Campbell Soup CPB is selling its international and fresh foods businesses as the 149-year old condensed soup maker struggles to regain its financial footing and refocus on its signature packaged foods, the company announced Thursday.
The company is unwinding efforts by former CEO Denise Morrison to branch into healthier and more fresh foods to refocus on product lines it knows well — snacks, meals and beverages. Morrison's surprise departure was announced in May when the company said it was conducting a top-to-bottom review of its holdings after releasing what executives called "unacceptable" earnings.
Shares of Campbell fell 2.4 percent in premarket trading.
The board considered a "full slate of strategic options, including optimizing the portfolio, divesting businesses, splitting the company, and pursuing a sale," Campbell's interim CEO Keith McLoughlin said in a statement Thursday. The board concluded that the " best path forward" is to "focus the company on two core businesses in the North American market," he added.
McLoughlin didn't take a sale completely off the table, adding that Campbell "remains open and committed to evaluating all strategic options to enhance value in the future."
The soup company said it was also raising its overall cost savings target to $945 million by fiscal 2022.
Unwinding Fresh
Campbell has been grappling with waning demand for its classic soup as consumers opt for healthier options. But the fresh foods, including carrots and smoothies, it's been trying to produce are less profitable and harder to manage for the soup giant. The company's shares have fallen 20 percent over the past year.
The sales of Campbell's fresh food business, including Bolthouse Farms, as well as its Arnott's and Kelsen brands overseas will help pay down the debt left behind from from its $6.1 billion acquisition of pretzel maker Snyder's Lance earlier this year. CNBC earlier reported the company was looking at selling the units to pay down debt.
The soup company's acquisition of Snyder's more than tripled Campbell's debt burden to $9.6 billion at the end of the most recent quarter, from $3.1 billion a year earlier. It was one of a series of deals over the past year in which a food giant paid a big price to buy one of the few food brands that are both growing and big enough to make a dent.
Ratings company Moody's Investors Service cited Campbell's high leverage ratio as a problem and questioned its ability to pay down that debt when it placed its bonds on review for a possible downgrade in May.
The fresh food unit posted an operating loss of $7 million this quarter, still less than its $8 million loss the prior year.
Brands like Bolthouse Farms could attract interest from both private equity buyers and companies that have more experience managing fresh food, say people in the industry.
Australian biscuit brand Arnott's may similarly attract both private equity firms and corporate buyers. It could command a price-tag of roughly $2 billion, say those people.
Third Point Pressure
The potential divestitures are likely to do little to appease Dan Loeb's Third Point, which recently disclosed a 5.65 percent stake in the company and called a sale of the business the "only justifiable outcome" of its review. The activist is teaming up with shareholder George Strawbridge, a descendant of founder John P. Dorrance, to call for the sale.
Strawbridge had his own stint on the Campbell board, on which he served from 1988 to 2009. A business man in his own right with ventures that include a stake NFL team the Buffalo Sabres, Strawbridge spent time on the board active and quizzical, according to someone who sat in on the meetings.
For Third Point to agitate for a sale, it would need to win over enough support from the family. The descendants of Dorrance — the man many say invented condensed soup — have multiplied across many different clans over the years, and they weren't all in agreement over whether to sell, sources have told CNBC.
Mary Alice Dorrance Malone is Campbell's largest shareholder, with a 17.7 percent stake in the company. Her brother, Bennett Dorrance, has a 15.4 percent stake. Other descendants hold a combined 7.9 percent of the company in the Campbell Soup voting trust.
Without a sale, Loeb and Strawbridge may push for a full turnover of the Campbell board, all of whom come up for reelection this year.
"Only a reconstituted board, free of the need to defend past actions and other legacy issues, will be able to objectively explore all strategic alternatives, including a sale of [Campbell] or other business combination, that would substantially increase the value of the [Campbell's] shares," wrote Strawbridge in a recent filing.
Doing so would threaten to ouster the three soup heirs that sit on it: Bennett, Mary Alice and their nephew, Archie Van Buren. Van Buren is the only one who has worked at the company for a prolonged period of time, giving him unique insight into its ins-and-outs.
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