Sold position awhile back.
Campbell Seen as Next Buffett Target Post-Heinz: Real M&A.Campbell Soup Co. ( CPB:US), the maker of Goldfish crackers and chicken noodle soup, may be next on acquirers’ grocery lists after the $29 billion takeover of H.J. Heinz Co. this year.
Campbell options contracts surged this month amid speculation the $13 billion company could attract takeover interest. After 3G Capital and Berkshire Hathaway Inc. ( A:US) agreed in February to buy ketchup maker Heinz, investors are eyeing Campbell as the next big target in the packaged food industry, said Edward Jones & Co. Investment firm 3G may be interested because of the benefits of combining Heinz’s and Campbell’s vegetable processing, and Warren Buffett’s Berkshire could help bankroll a deal again, Sanford C. Bernstein & Co. said.
Like Heinz, Campbell has a strong brand, which may appeal to other food makers and financial buyers, said S&P Capital IQ. Even as Campbell faces slowing sales of its iconic soups as consumers turn to fresher foods and competing brands such as Progresso, the company still offers a buyer the biggest share of the soup market at 22 percent. While a takeover would need approval from family members owning more than 40 percent of Campbell’s shares ( CPB:US), the company also is more affordable than 70 percent of food-manufacturing peers based on its price-earnings ratio, according to data compiled by Bloomberg.
Video: Campbell Soup Seen as Next Course for Buffett
Campbell has “obviously got some brands that are really worthwhile,” Jack Russo, a St. Louis-based analyst at Edward Jones, said in a phone interview. After the acquisition of Heinz, “investors tend to think where there’s one, there could be two or three” deals.
Soup Decline Carla Burigatto, a spokeswoman for Camden, New Jersey-based Campbell, declined to comment on a potential sale of the company. A representative for 3G declined to comment, and Buffett didn’t respond to a request for comment sent to an assistant.
A month ago, Campbell reported a decline in first-quarter soup sales and said profit for the year ending in July will be less than previously forecast ( CPB:US). Amid market-share losses to rivals such as Progresso-maker General Mills Inc. ( GIS:US), Campbell has been focusing on bolstering its beverage division.
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Campbell has made acquisitions since 2011 to catch up with shifting consumer preferences, including the purchases of juice maker Bolthouse Farms and baby food purveyor Plum Organics.
After Berkshire and 3G announced the acquisition of Heinz on Feb. 14, shares of Campbell advanced along with other consumer stocks such as General Mills and J.M. Smucker Co. Campbell rose as much as 6.2 percent that day for the biggest intraday gain since 2008.
Buffett, 3G One thing that drew Buffett and 3G to Heinz was the opportunity to use the acquisition “as a platform to sort of get bigger around the global food industry,” Bill Johnson, former chief executive officer of the ketchup maker, said during a February conference call.
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If 3G is seeking to increase its foothold in packaged foods, Campbell “would definitely be next on the list,” Alexia Howard, a New York-based analyst at Bernstein, said in a phone interview. “Heinz’s big businesses are largely vegetable-based. Obviously, they’ve got tomato ketchup here in the U.S., and in the U.K., they’ve got a soup business that’s actually very like Campbell’s. There probably would be a lot of benefits on the vegetable procurement front.”
Campbell saw record volume Dec. 6 in a series of bullish options ( CPB:US) that will pay off if the stock advances more than 5 percent by the end of this week. More than 20,000 contracts of $43 December calls changed hands that day, compared with an average daily volume of about 60, data compiled by Bloomberg show.
‘Classic Example’ Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics, said it was “a classic example of what takeover speculation looks like in the options market.”
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While 3G likely lacks the financial resources to acquire Campbell on its own as it digests the Heinz takeover, Buffett could use his deep pockets ( B:US) to help fund a deal sooner, Howard said.
Berkshire also already owns candy maker See’s Candies, and helped finance the purchase of Wm. Wrigley Jr. Co. by Mars Inc. in 2008. Buffett has praised the business model of turning commodity ingredients into premium-priced products.
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