Commentary

Campbell Close To Truce With Loeb After Better-Than-Expected Results

Campbell Soup and Third Point are reportedly near a deal to give the activist hedge fund led by Daniel Loeb two seats on its board of directors and a say in picking the next chief executive following months of verbal and legal acrimony.

“The two Third Point nominees expected to join the board are comScore Inc. President Sarah Hofstetter and former Blue Buffalo chief executive Kurt Schmidt,” which would expand the body to 14 member from 12,  sources tell the Wall Street Journal’s Cara Lombardo and Annie Gasparro, who broke the story about the peacemaking in progress last night.

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“The deal being discussed is similar to the offer Campbell made to Mr. Loeb earlier this month, the people said, which Mr. Loeb rejected at the time…. It is also expected to include a customary standstill provision that would prevent Third Point from launching a proxy fight next year, one of the people said.The deal hadn’t been finalized as of Sunday afternoon, and talks could still fall apart. A shareholder vote is scheduled for Thursday,” Lombardo and Gasparro add.

Denise Morrison suddenly stepped down as Campbell CEO in May after seven years of leading the company toward a healthier path but shaky financial results. 

“Campbell Soup director Keith McLoughlin has filled the vacancy on an interim basis and has said he does not want the position permanently.The company aims to name a permanent CEO before year end,” Svea Herbst-Bayliss and Greg Roumeliotis write for Reuters.

Campbell COO Luca Mignini “is one contender, sources have said, but Third Point has said an insider would be unacceptable. The hedge fund has been courting its own candidate, according to a source familiar with the matter,” they continue.

“Third Point had lambasted the soup maker’s board, telling shareholders it ‘blew your money on bad deals that haven’t worked’ and was responsible for a ‘tenure of mismanagement, waste, ill-conceived strategy and inept execution,'” Lindsay Fortado reports for Financial Times.

“The hedge fund’s lawsuit, which unsuccessfully sought to force an expedited process that would have put several of Campbell’s directors on the witness stand ahead of the vote, alleged the company sent out misleading information to shareholders and withheld some material that was relevant to the vote. Campbell had in turn slammed Third Point’s interest as solely in selling the company rather than helping to revive it,” Fortado adds.

“The potential settlement would mark a muted victory for activist firm Third Point and its founder, Dan Loeb, which have a roughly 7% stake in Campbell. Third Point pushed for a sale of the soup company before saying it would accept other strategic moves. It went from lobbying to replace Campbell’s entire board to seeking to add only five directors,” CNBC’s Lauren Hirsch observes.

"Should Third Point and Campbell secure a deal, it would mark a shift for a soup company steeply tied to its tradition of largely being run as a family company. Three of Campbell’s heirs sit on its board. The descendant family owns at least 41% of the company and pledged their support of the soup company. That’s even as one of the Campbell soup heirs, George Strawbridge Jr., partnered with Loeb in the proxy battle,” Hirsch adds.

“Under a turnaround plan the company announced in August, Campbell would sell off international assets, like Arnott’s Biscuits, and retreat from other businesses, like refrigerated soup. It would use the proceeds to pay down debt and focus on canned soup and well-known North American brands like Goldfish and Prego,” Noam Scheiber writes for the New York Times, adding that “Loeb has nonetheless painted the family members as insufficiently willing to shake up the company.”

“We’re interlopers who’ve come in, and they’ve decided to stick with the status quo,” Loeb said in an interview with the NYT’s Nelson D. Schwartz earlier this month.

Campbells Q1 2019 quarterly results, released last Tuesday, were better than analysts expected,  with net sales rising 25% to $2.69 billion, beating expectations of $2.67 billion.

“Still, the company has challenges ahead,” CNBC’s Hirsch reported. “Sales at its meals and beverages unit, which houses its namesake soup, dropped 5%. … Sales at its fresh food business, which Campbell plans to sell, fell 1% to $232 million.” Soups were down 6%, but that’s better than last year, when the decline was in double digits, the WSJ reports.

Interim CEO McLoughlin “said the company’s ‘top priority is to stabilize and improve the performance of [its] soup business,’ on the earning call. “[S]oup is a great business and we are taking a back-to-basics approach, leveraging our market-leading brands and driving improved execution across the portfolio,” he said, Tonya Garcia reports for MarketWatch.

Meanwhile, Garcia reports, RBC Capital Markets analysts suggests it jump on the Instant Pot craze. 

“NPD Group data shows that slow cookers and ‘insta-pots’ are among the fastest-growing appliances, which illustrates the growing role that Campbell can play in serving up recipes, cooking soups, and sauces to millennial families,” RBC says in a note.

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