Can Activists Make Campbell’s Sell More Soup?

August 9, 2018 by Jon C. Ogg

Investors and speculators alike still love watching and following the actions of activist investors. And when it comes to those activists, names like Dan Loeb and Third Point are high on the list. An SEC filing from Thursday confirmed that Dan Loeb and Third Point have increased their stake in Campbell Soup Company (NYSE: CPB).

Investors have already called for action here at Campbell and the company is currently without a CEO. There have been reports of a potential sale of the company after prior news that the food giant was using Deloitte for a strategic review.

There are two problems with activists going after companies like Campbell Soup. The first problem is that there may be no significant growth opportunity left for the company to pursue in the markets it is already in. The second is that any would-be acquirer is not likely to pay a significant premium to acquire the company.

A 13D filing from Thursday shows that Third Point and its affiliates have acquired 17 million shares for a 5.65% stake in the Soup and pre-packed foods giant. The SEC filing has some rather unusual wording in it regarding the purpose of the transaction — disastrous fiscal 3q18 earnings report, abysmal oversight, permitted management missteps, dismal operating performance, ill-advised acquisitions, current CEO vacuum and so on.

To make matters worse for investors in the soup and food giant, Third Point’s filing highlighted that its stock trades at the same price as it did back in 1996. And addressing the potentiality of a sale in a strategic review, Third Point’s 13D filing said:

The Reporting Persons understand from our conversations with the Issuer’s Interim Chief Executive Officer, Keith R. McLoughlin, and the Issuer’s public statements that all options, including a sale, are being evaluated in the ongoing strategic review. The Reporting Persons are encouraged by recent press reports suggesting that a sale process is already underway. Given the significant obstacles facing the Issuer, the Reporting Persons believe that the only justifiable outcome of the strategic review is for the Issuer to be sold to a strategic buyer.

Most of Third Point’s shares were purchased at prices of between $35 and $43 from June 11 through August 8.

There have already been media reports speculating who might acquire Campbell Soup, with Kraft Heinz Co. (NASDAQ: KHC) and its current $70 billion-plus market value being the most frequently named. Its market cap of almost $13 billion would make for a larger merger for a public food company or for a private equity giant but it’s also within the realm of possibilities.

If there are no obvious significant growth opportunities left for Campbell Soup, what will the low-growth of Kraft Heinz bring to the table? And what sort of premium would Kraft Heinz be willing to pay to acquire this company? The food business is ultra-competitive and the current trend has been a move toward healthier foods that are more natural and that contain less sodium. Campbell and Kraft Heinz can both increase their efforts there, but they cannot just exit and abandon their brands and products that have been on grocery store shelves for decades.

Maybe Campbell Soup can secure a buyout from Kraft Heinz or another large food player. And maybe the company can bring in a new management team from the outside that can turn this ship around and rekindle some growth. Then again, jamming together two large companies creates no real new growth outside of looking for those cost synergies that can be cut to eventually drive earnings higher.

When activists get after a company to find a buyer, outside investors listen. That said, it might make just as much sense for an activist simply to try to get the company to sell more food. If life were only that simple.

Campbell Soup shares were last seen trading up 1.2% at $42.48. This was a $60 stock in early 2016 and its 52-week trading range has been $32.63 to $54.37.

Analysts on Wall Street do not exactly have a major view that Campbell Soup’s value is significantly higher. The consensus analyst price target is closer to $36, although the highest analyst price target is at least up at $48.