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It's a very busy merger this Monday, and host Chris Hill and Motley Fool contributors, Jason Moser and Taylor Muckerman, are here to explain the details of this episode of Foolery of the market.
Campbell Soup (NYSE: CPB) is supposed to frame the market for a buyer. But while some prospects make more sense than others, no one really needs the besieged soup maker at this point. Harley Davidson (NYSE: HOG) is down slightly after international rates have hit firm prices, but long-term investors should not be too worried about this bump in the road. AT & Tof (NYSE: T) The AppNexus acquisition for around $ 1.6 billion is a little bit less important than its recent purchase of Time Warner, but the online advertising company could have a ton to offer now that's "worth it". AT & T has all this new content to distribute. Give yourself to know more.
A full transcript follows the video.
This video was recorded on June 25, 2018.
Chris Hill: It's Monday, June 25th. C & # 39; Foolery of the market. Welcome! Thank you for checking us. I am Chris Hill. I am accompanied by Jason Moser and Taylor Muckerman. Happy Monday, gentlemen!
Jason Moser: Eh eh!
Taylor Muckerman: You too!
Hill: We have fusion projects on Monday!
Moser: Why not? It's Monday.
Hill: We have legitimate merger projects, and we have rumors. We will go to the rumor stuff. Whenever you start looking, "What are the actions doing today?" And you see Campbell Soup shares up to 10% –
Muckerman: My God.
Moser: Mm-mmm!
Hill: – which requires further investigation. As a reminder, it was last May that Campbell Soup announced that it was the subject of a strategic review. And, of course, every time you hear "We are undertaking a strategic review," one of the questions on the table is, "Should we go on sale?" That's when Denise Morrison, the CEO, said, "Check, please" and she left. Now we receive reports Kraft Heinz (NASDAQ: KHC) could look to buy Campbell Soup, and the shares are up 10%.
Moser: I feel like that is the language I have to integrate into my home. We teach our children, we manage this business from our house. The money comes in and out. From time to time, I just want to make them wonder, like "Kids, listen, we're under strategic review right now."
Hill: Or, if you really want your child to wonder, say, "You are undergoing a strategic review.
Moser: [laughs] "Everything is on the table."
Hill: Just to set the context – Campbell Soup is currently a $ 13 billion company. Kraft Heinz is a company of about 78 billion dollars. Should Kraft Heinz be looking to buy Campbell Soup? $ 13 billion seems to be a big check!
Moser: Yes, it is not a silly change. I think the writing was more or less on the wall for Campbell when Denise Morrison left the role of CEO a month ago. She did not really have a good track record. I will not pin it all on her.
Hill: No, we talked about how this industry is now the industry to avoid.
Moser: C & # 39; is. There are many old brands that we see – and when I say "old marks," I'm talking about the brands that defined our childhood as we grew up. Everyone's pantry had Campbell Soup and all the other things that they were selling – what, Pepperidge Farm's cookies, and all sorts of things. We are undergoing a serious change of seat in what people put in their kitchens, how people eat, how they look at eating. We see a lot of these inherited marks in front of a calculation point here.
With Heinz, Kraft Heinz is a big company right now. If you look at the only benefit in this space, if you are one of those traditional brand companies, it is the scale, that 's the size. Be as big as possible, because then you can play down some of these costs, become as efficient as possible. This gives you at least some additional choices. For Kraft Heinz, it's a $ 77 billion company, which generates annual sales of about $ 26 billion. The acquisition of Campbell, if it's something that interests him, could add $ 8 billion to this line of credit and allow him to deduct some of those costs.
We saw General Mills lobed in this discussion as well as any interested party by Campbell. I would say that General Mills probably needs Campbell more than Kraft Heinz. I do not think any one of them needs Campbell, though. That's what puts Campbell in such an unpleasant place. Nobody really needs them.
Muckerman: [laughs] It's a tough place, indeed.
Hill: It's a hard medicine. I receive the general interest of General Mills, but it is a much smaller company. It's about a $ 27 billion company. So the fact that they would try to take Campbell Soup makes less sense to me. They also have soup marks inside of that. They have Progresso, they have Annie. You look at Kraft Heinz, for all the things that they do – they have Heinz soup in the UK.
As you said, Jason, they have scale. Campbell Soup is probably the best known brand. They do not need it. I think that they could make it work. I'm just asking about the price tag because I think there's a point where, if you're a shareholder of Kraft Heinz, you say, "Yes, we'd like Campbell Soup, it would be additive at a certain price. If they go out and start paying a premium in addition to what we see now, then I think you have to question it.
Moser: Yes, and if you look at Campbell today, the multiple of what he's doing is a bit exaggerated because they've had to write off a bunch of goodwill here recently. In fact, it's not a stock as expensive as you might think at first glance.
I think maybe a decent comparison here could be Mattel. We talked a lot about Mattel and Hasbro. Mattel is not a company I think you really need to go chasing after. It's more like: "Yeah, we'll do you a favor, we'll get you out of trouble if you want to be part of our family or you can continue to do it yourself." need you."
I think most of those parties watching Campbell feel the same way. They are like, "Yeah, we will bring you in our family, but we will dictate the price." Again, this is not a good thing for Campbell, obviously, but Campbell has not experienced the best five years, so I do not know if they have a lot of choices right now .
Hill: Moving on to Harley-Davidson, stocks are down about 5% today. Harley-Davidson is really caught up in this trade war. There are new US fares that would add just over $ 2,000 to the cost of every motorcycle exported to the US. Harley-Davidson says they're not going to raise prices, but what they're planning to do is move the production of motorcycles intended for E.U. to buy at their international facilities. It's a bit surprising, Taylor, when you consider that it's as iconic as a made-in-America brand as there are currently.
Muckerman: Yeah. When you look at this, it's rather interesting, you saw a bunch of jobs come back to the United States, and then the trade war started to heat up. I think it's the first time I see a company advertise jobs abroad – especially, as you said, an American icon like this.
They have factories on an international scale, but that will add to that. They did not specify to which factory they would entrust this production, but they have in Thailand, Australia, India and Brazil. I think that any of them is at stake.
You mentioned the rates that are being instituted here. It was already at 6%. Now, it's going to be 31% per bike. The average will be $ 2,200, as you mentioned. This is a big problem for an item that will only cost you $ 15,000 to $ 40,000 if you go super luxury. But it's a very big number for an object like that.
Hill: It also comes at a time when – Jason, you mentioned that Campbell Soup was struggling in the last five years – Harley-Davidson has struggled in the last few years, maybe not five, but certainly the last two or three years. One of the glimmers of hope for Harley-Davidson was that sales outside the United States were on the rise and were beginning to somewhat offset the decline in US ridership. United.
Muckerman: Yes, you mentioned that, and you have 12% increase in international sales during their last quarter. A slight decrease of 0.2% in the United States. When you talk about the EU, it's their biggest market outside the US with about 15% of their sales. And they also increased their market share. This is certainly an area they focus on, and it makes sense to me that they do it. They say it will take about nine to 18 months to establish increased production outside of the United States. When you talk about that, you will lose jobs in Pennsylvania, Missouri or Wisconsin, where they have their American facilities.
Moser: Yes, it's really interesting to watch this game. On the one hand, we are talking about these tariffs, we are talking about protectionist measures and, in the end, they are simply increasing the cost of doing business. This, in general, is really good for no one. On the other hand, you see proponents pushing back those tariffs a bit, maybe the current administration is looking for a better deal, a fairer deal, at least that's what it's all about. ;they hope. This makes sense, to a certain extent.
You see these day-to-day machinations that make you think, is there really something to be done, while in the end, Harley-Davidson will still be Harley-Davidson. If the cost of doing business is not helpful for this big American company – I think we all think that Harley-Davidson is one of those real American names – future administrations could redirect this policy to try to make it happen. to get more companies like Harley back in their favor.
Again, we're talking a lot about adopting a long-term vision, and I think days like these, or titles like these, it's easy to get lost by thinking, "It's not going well never get better. really does. Harley-Davidson is always a good deal. It's always a good brand. It's not really their fault.
Muckerman: Not at all.
Moser: It's just one of those things that's going on. I invite investors who are owners of Harley-Davidson or who are considering buying Harley-Davidson to do it a little longer and who are trying to think about it in the longer term, in five or ten years – – This business is still there? I think that's it. I think they're probably taking advantage of the declining traffic in the United States by spreading that footprint globally, and maybe you can still see a light at the end of the tunnel.
Muckerman: And they work on electric bikes. They should have one next year. They follow the technology. They are redeveloping some of their lines over the next year. Definitely a company to keep in the eye. Just remember Wilbur Ross shaking the Campbell Soup Box on CNBC to defend these steel tariffs in China.
Hill: AT & T buys AppNexus, an online ad exchange company. AT & T pays something in the neighborhood of $ 1.6 billion, certainly a lot less than the $ 85 billion [laughs] that they paid for Time Warner. Looks like a good buy here. If AppNexus is good for showing ads, and AT & T has more content coming up, then yes, it seems like it will pay for itself in a very short time.
Moser: J & # 39; imagine. We should not be surprised at the case. It was actually in the 10-K in February, where they wrote in the section on expected growth areas, and I quote one of these points: "Create a new targeted advertising platform using data, from Content and talent build an automated advertising platform capable of transforming high-end video and TV advertising. "It seems like in the 10-K, they already assumed that the Time Warner deal was going to go in. I think most of us have probably done it.
But that really complements, I think, the business that AT & T has become. They have the tips, they have the content, now they want to build in the advertising platform to take advantage of it all. In one Facebook (NASDAQ: FB) and Alphabet world, I think that makes a lot of sense. It's the change of chump, when you think about it. I know we are throwing billions of dollars in the form of dollar figures, as they were nothing, but they have a lot of money in the balance sheet to bring down this problem. I do not think, at this point, that there is any antitrust consideration. So, assuming AT & T people know what they are doing, then this should be something that rolls well in the business.
Muckerman: You mentioned video and TV advertising, it's there Twitter has seen a lot of growth. Definitely a lot of sense for a business with a lot more content than even Twitter has generated. Decidedly, ad tech is all the rage these days.
Hill: The reason I hesitated about the price paid by AT & T for AppNexus, is that everything I read this morning basically said: "C & # 39; is what has been reported ". I saw a line that said: "AT & T does not disclose the price."
Moser: "The terms of the agreement have not been disclosed."
Hill: Yeah, that just let me scratch my head, kind, wait a minute. do not What are you trying to hidebut, part of me is like, well, wait, what are you trying to do? We do not care? You just paid $ 85 billion for Time Warner! What does it matter if it's $ 1.6 billion or $ 1.7 billion?
Moser: That's a good point, I suppose, but everyone likes to play their cards a little near their jacket sometimes, right?
Hill: Should not you do it under the $ 85 billion deal?
Moser: Well, I mean, I think it's probably more of an obvious price tag.
Muckerman: They have a fiduciary duty!
Moser: We probably have a few questions regarding AppNexus and the potential of this business and the numbers. The more we know about the numbers of the operation, the more we can speculate on the multiples and how much money this business is really worth and what are the potential impacts for AT & T. So, I understand. Sometimes they just do not want to get in the middle of that, they feel that maybe it's protecting their IP or their competitive position at least somewhat. But, I mean, from your point of view, it's the change of chump compared to what they just did. This seems like an afterthought.
Hill: By the way, $ 1.6 billion, just a reminder, is what Google has paid for YouTube.
Muckerman: We have a winner!
Hill: How it works?
Moser: It's a very good point you're doing there. When you look at the direction that the content takes, YouTube has proven to be a phenomenal platform for many different reasons. I was brought back by asking my kids about it a few years ago, even though I had to remove you one, Netflix or YouTube, which one should you keep? And they are like, "Oh, YouTube." It was rather surprising, but I understand. YouTube is wonderful for a lot of reasons. I threw a tile backsplash on our shower this weekend at home, and I had some ideas from YouTube. You know that I like to do watercolor, I learn a lot on YouTube.
Facebook is trying to do the same thing. It's not this content we know, that we see on TV, necessarily. It's all that ad-hoc content that everyone finds what he wants, when he wants it. That's why YouTube has been doing such a good job for so long. The man, one of the most clever acquisitions of all time, next to Facebook's Instagram. I mean, these two together, wow.
Muckerman: You have hours of content that goes up every second. Generated by the user
Moser: Yeah, and Instagram is going into that same game. Facebook is using this Instagram platform to really develop this video offering. I think that AT & T does everything it can to try to stay at least in the same state of mind. I mean, I do not think they're holding a candle, really, at Alphabet or Facebook, but they are trying at least to get their share.
Hill: Thank you for being there, guys!
Muckerman: Enjoy it.
Moser: Thank you!
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so do not buy or sell stocks based solely on what you hear. That will do it for this edition of Foolery of the market. The show is again mixed by Austin Morgan, replacing Dan Boyd, who may be jet lagged on his trip.
Moser: [laughs] Or something else.
Hill: We are not sure. We will investigate. I am Chris Hill. Thank you for listening! Well, see you tomorrow!
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