This activist investor will not like Campbell Soup's new strategy – The Motley Fool

Campbell Soup (NYSE: CPB) just said the equivalent of "do not worry, we got this" to investors. Instead of selling to another company, as previously envisioned, the prepared food giant plans to go it alone and try to turn around. That's probably not going well with Daniel Loeb, the billionaire hedge fund operator who has pleaded for Campbell to enter the market.

Too many cooks ruin the soup

Campbell Soup has had to deal with changing consumer food tastes, resulting in five consecutive years of declining sales. Although sales climbed 33% to $ 8.69 billion in the year ended 2018, which was entirely due to the acquisitions of Pacific Foods and Snyder & # 39; s-Lance. Organic sales decreased 3% year-on-year.

Loeb criticized what he sees as a dysfunctional board of directors at the soup maker. He complained that the board had "years of catastrophic oversight" while mishandling the CEO's succession planning. (Former leader Denise Morrison resigned abruptly in May on the same day Campbell published another sadly positive quarterly report on her results.)

Keith McLoughlin, a member of the Board of Directors, was appointed Acting Chief Executive Officer until a replacement could be found, and he announced that Campbell would undertake a comprehensive strategic review of his activities. "Everything is on the table, there are no sacred cows," he said. Loeb said that a sale was "the only justifiable result" of the process.

The lean on divestment

Instead, Campbell decided to go it alone. At the end of August, the company announced that it would sell its international operations and fresh food division while continuing to recover. Campbell International includes Arnott & Kelsen Group, manufacturing activities in Indonesia and Malaysia and activities in Hong Kong and Japan. The Campbell Fresh unit includes Bolthouse Farms, purchased in 2013 for $ 1.5 billion; Garden Fresh Gourmet, bought two years later for $ 231 million; and its chilled soups.

These two divisions represent annual sales of $ 2.1 billion, and Campbell said he would use the proceeds of their sale to reduce his debt. Its balance sheet amounted to $ 8 billion and its current liabilities to $ 3.6 billion as of July 29. These were offset by only $ 2.3 billion in short-term assets.

Campbell Soup said that a sale of the company is still on the agenda because she said she "remains open and determined to evaluate all strategic options to improve future value" .

End of sale

Loeb is likely to grab that. Its hedge fund, Third Point, holds 5.65% of Campbell Soup's shares, and it would try to fill a list of candidates to challenge the existing board, which is a difficult task. The descendants of John Dorrance (who invented condensed soup at Campbell's) dominate the current picture, but Loeb has an ally at one of Dorrance's grandsons. According to Reuters, Loeb had talks with former Campbell Soup CEO Douglas Conant and former board member William Perez.

Selling the company can be as difficult as gaining board seats. There are few companies of sufficient size to buy Campbell Soup. Kraft Heinz is often high, but has not yet made an offer. General Mills would have also had an interest in the soup maker. Yet Campbell's poor operating results and high debt load, as well as the high cost of a potential acquisition, pose difficult obstacles to overcome.

On the other hand, Campbell Soup's plan to shrink to a more digestible size could make Loeb's goal of selling the company easier when it gains enough presence within the company. advice.

Rich Duprey has no position in the mentioned actions. The Motley Fool has no position in the stocks mentioned. Motley Fool has a disclosure policy.