Daniel Loeb’s Campbell soup bargain view might be an investor’s appetizer for the food and beverage sector.
Companies in the sector are likely to continue consolidating as a strategy for boosting profits by reducing costs through economies of scale at a time when their market share remains stagnant.
“Daniel Loeb’s Campbell soup bargain view might be an investor’s appetizer for the food and beverage sector”
Daniel Loeb’s Campbell soup bargain view that its stock (CPB: NYSE) could be worth 50% more than its current market value is based on Campbell’s being sold
Daniel Loeb is a billionaire activist investor who seeks to make profits by acquiring a controlling stake in the company and then goes about changing the company from within. Activist investors often believe that greater stock value can be achieved by replacing underperforming board members with more competent managers with the aim of steering the company back to profitability.
Daniel Loeb’s Campbell soup bargain view was put forward in the billionaire’s Third Point report which stated that Campbell could fetch a takeover value of $52 to $58 per share. If so, that would be above 50% on the soup company, based on its October 2 trading price of $36.34 a share.
Daniel Loeb’s Third Point also reiterated that a full board replacement would be required in order for the soup company to get back on track to profitability.
“Daniel Loeb’s Campbell soup bargain view was put forward in the billionaire’s Third Point report which stated that Campbell could fetch a takeover value of $52 to $58 per share”
Daniel Loeb’s Campbell soup bargain view follows Third Point’s proxy statement filing with the US Securities and Exchange Commission (SEC) which revealed its 5.65 percent stake in Campbell.
In September, Daniel Loeb through Third Point (known as an activist alternative fund) announced his intention to replace the entire Campbell board.
Daniel Loeb was unimpressed with the financial results. Campbell’s disappointing earnings followed by CEO’s departure had compelled the board to make a critical review to shareholders.
“The board concluded that the “best path forward” is to “focus the company on two core businesses in the North American market” – Keith McLoughlin, Campbell’s interim CEO
Daniel Loeb’s Campbell soup bargain view is also based on a push for Campbell to find a buyer
In August Campbell announced that it was planning to sell its international and fresh food business, including Bolthouse Farms, as well as its Arnott’s and Kelsen brands overseas.
In May Campbell announced its top-to-bottom strategic review.
The board has considered a “full slate of strategic options, including optimizing the portfolio, divesting businesses, splitting the company, and pursuing a sale,” in the hope that the condensed-soup maker struggles to regain its financial footing.
Campbell’s interim CEO Keith McLoughlin said in a statement. The board concluded that the “best path forward” is to “focus the company on two core businesses in the North American market” he added.
Despite Campbell’s string of sale announcements and strategic review, Dan Loeb is calling for Campbell to sell itself.
But could Daniel Loeb’s Campbell soup bargain be overoptimistic in this current era of healthy fresh food eating?
Consumers are aware that canned food eating is usually unhealthy. Canned food with plastic lining is particularly unhealthy. Millennials are turning more towards homemade artisan foods. Shifting tastes and demand for healthier foods could be canning (pardon the pun) Campbell’s profits.
Sales in Campbell’s US soup business during its fiscal fourth quarter ended July 29 plummeted 14 percent. Moreover, Campbell is no longer able to simply raise prices to counter shrinking demand, the company said in its last earnings release.
“I think the millennial generation is much more demanding than prior generations” – Nigel Travis, CEO of Dunkin’ Brands
So Daniel Loeb’s Campbell soup bargain does not take into consideration that millennials’ eating habits are wildly different from their parents’ — and the food industry has to face urgent consequences.
Millennials have a strong preference for convenience, and eat at restaurants more than any other generation, according to Bernstein analysts.
What’more, millennials, the largest living generation, are poised this year to have more spending power than baby boomers, according to analysts at Bernstein.
As this habit grows, more grocery stores are now offering prepared meals or improving their existing options. Technologies like mobile ordering and delivery apps are playing a key role to make eating more convenient for millennials.
“I think the millennial generation is much more demanding than prior generations,” Nigel Travis, the CEO of Dunkin’ Brands, told Business Insider’s Kate Taylor in September.
Daniel Loeb’s Campbell soup bargain view doesn’t take into consideration Cambell’s high debt burden
Due to its high price acquisitions of $6.1 billion acquisition of pretzel maker Snyder’s Lance earlier this year.
Moody’s Investors Service has already cited the company’s high leverage ratio as a problem and questioned its ability to pay down that debt. The rating company placed Campbell’s bonds on review for a downgrade in May.
So Daniel Loeb’s Campbell soup bargain view is based on the company being acquired which Third Point hopes to agitate. But Campbell being sold could be a tall order, bearing in mind that the descendants of Dorrance, the man many who invented condensed soup and founded the 149-year-old company, would have to agree on a sale.
A friendly acquisition would need to win over enough support from the family. The descendants of Dorrance have multiplied across many different clans over the years, and they were not all in agreement over whether to sell, sources have told CNBC.
Nevertheless, perhaps Daniel Loeb’s Campbell soup bargain view could materialize if Cambell can innovate and adapt its brand to changing tastes of millennials who would rather spend money on experiences rather than things.
When eating becomes part of that “experience” then perhaps Campbell might gain traction. But as it stands a can of condensed soup isn’t going to cut it for this up and coming generation of consumers.
Dan Loeb targets Sony. Dan Loeb is an activist investor and founder of Third Point, which oversees about $14.5 billion in assets.
Last year the activist investor viewed Campbell soup as a bargain when Third point reported that the soup maker could fetch a takeover value of $52 to $58 per share.
A year later and the activist investor Dan Loeb targets Sony
Dan Loeb's activist hedge fund Third Point is raising an investment vehicle to generate between $500 million and $1 billion so it can continue to buy Sony shares, according to a recent report in Reuters.