Campbell Soup Co has said that it plans to sell its international and fresh refrigerated-foods units and left open the possibility of putting the whole company up for sale, following a months-long review and pressure from hedge fund investors to sell itself outright.
It is not clear if the plan will appease activist investor Dan Loeb, whose Third Point LLC hedge fund announced a 5.7% stake on August 9 and immediately pressed for a sale of the entire company to a competitor as "the only justifiable outcome."
If dissatisfied, Loeb could escalate his attack into a proxy fight and nominate a slate of directors within the next few weeks to be voted on at Campbell's annual meeting later this year, sources familiar with the matter told Reuters this week. Third Point declined comment on Thursday.
Options
Campbell's Interim Chief Executive Keith McLoughlin said the board considered the option of a complete sale during its review and ended the process "with a completely open mind."
Selling the two smaller units could make Campbell a more attractive takeover target by turning its focus back to its core soup and salty snacks businesses.
McLoughlin played down the prospect of a sale of the whole company, at least publicly. "I don’t want to overstate it because we are absolutely committed to executing this plan," he told Reuters in an interview on Thursday. "The board concluded that this current plan right now is the best one to maximize value."
Billionaire investor Warren Buffett told CNBC his Berkshire Hathaway Inc would not buy the company and said it is "very hard to offer a significant premium for a packaged goods company."
On a conference call with analysts McLoughlin sidestepped questions about investor activist pressure for a sale and declined to comment on whether any activists, such as Loeb's Third Point, would be given board seats.
Shares of Campbell, which has a market value of about $12 billion (€10.3 billion), fell 1.6%.
Alongside the results of its review, Campbell also forecast earnings per share for fiscal 2019 below Wall Street's average estimate, as its costs continue to rise.
New Strategy
The 149-year-old company which revolutionised the home-cooking industry with easy-to-prepare soups and low-cost production techniques has been struggling to attract young consumers to its namesake soups, Pepperidge Farm cookies and other foods and drinks.
Campbell's latest foray into fresh food has faltered while Wall Street has questioned an acquisition strategy that increased its debt while costs are increasing. Its shares have fallen by a third over the past two years.
The company said on Thursday it would use the proceeds of the unit sales to reduce its debt and also increased its cost savings target by $150 million (€128.8 million) to $945 million(€811.1 million) by the end of fiscal 2022.
Retreating from the international and fresh-food businesses marks a reverse from the strategy of former Chief Executive Denise Morrison, who wanted Campbell to have a wide-ranging portfolio with a focus on health and well-being.
Morrison stepped down abruptly in May after a string of poor results. On the same day, the company announced its sweeping review and named McLoughlin as interim CEO.
"Simply put, we lost focus," said McLoughlin on Thursday. "We aggressively pursued the important consumer mega-trend of health and well-being without having clarity on our source of uniqueness ... and we depended too much on M&A, to shape our business strategy," he said.
Campbell is still looking for a new permanent CEO. McLoughlin said on Thursday he was not a candidate to take the job. The company also said it was rescheduling its annual investor day from October this year to spring next year.
Out With Overseas, Fresh
The two businesses put up for sale currently bring in about $2.1 billion in annual sales, about a quarter of Campbell's overall revenue.
Campbell International includes Australian biscuits brand Arnott’s and the Kelsen Group, along with the company’s manufacturing operations in Indonesia and Malaysia and its businesses in Hong Kong and Japan.
Campbell Fresh includes Bolthouse Farms, Garden Fresh Gourmet and the company’s refrigerated soup business.
The company has hired Goldman Sachs Group Inc and Centerview Partners to sell the units.
Under Morrison, Campbell arranged its products into three parts in 2015, setting up the new Campbell Fresh business. The unit was meant to tap into consumers' booming appetite for healthier foods but the business struggled, resulting in a two-year decline in organic sales.
For fiscal 2019, Campbell forecast earnings per share of between $2.45 and $2.53 for fiscal 2019, not including the effect of the planned unit sales, below Wall Street's average estimate of $2.69, according to Thomson Reuters I/B/E/S.
The company reported fiscal fourth-quarter earnings per share of 25 cents, just ahead of the Wall Street's average estimate of 24 cents.
