Bolthouse acquisition takes Campbell into growing chilled food categories

Bolthouse acquisition takes Campbell into growing chilled food categories

In M&A circles, Campbell Soup Co., the US food giant, has been seen as one of the more cautious multinational companies in recent years.

Campbell has added the odd business to its portfolio - in 2008, it snapped up the Wolfgang Puck organic soup business; a year later, it bought artisan bread firm Ecce Panis - but it has shied away from major acquisitions in the last decade or so.

That changed last week when Campbell announced the largest acquisition in its history, a US$1.55bn deal for Bolthouse Farms, a business that sells carrots, salad dressings and juices in the US. It is a bold move from Campbell, not just because of its recent record of caution on M&A but also because it gives the company a serious presence in the chilled aisle of US stores.

Bolthouse's margins are lower than Campbell's soup business but the deal gives the company the opportunity to tap into demand for fresh food. What's more, Campbell hinted it could look to use Bolthouse to expand into other chilled categories, including soups, sauces and dips.

Sanford Bernstein analyst Alexia Howard said the deal made "strategic sense" for Campbell. "Bolthouse Farms' portfolio of value-added natural and healthy products should provide a platform for Campbell to align with the health and wellness growth theme and consumer demand for fresh and more natural products," she wrote in a note to clients.

The acquisition comes as Campbell continues to battle with stagnant sales from its core US soup business. In the first nine months of Campbell's financial year, a period that ran until 29 April, the company's soup sales in the US were down 3%. The fall comes on the back of two years of declining sales and there have been broader concerns over the US soup sector: has, for instance, canned soup suffered due to the downturn or is it permanently in decline?

Campbell president and CEO Denise Morrison has said the company's lower trade spending and moves to increase prices were behind the continued pressure on soup sales. When Campbell reported its nine-month results in May, Morrison said Campbell would "leave no stone unturned" in scrutinising its distribution and product line-up. She described Campbell's record of innovation on soup in the US as "woefully under average" and said its "innovation agenda" would "accelerate our growth over time".

Morningstar analyst Erin Lash said she "applauded" the fact that the acquisition would build Campbell's "faster-growing healthful beverage business" but she expressed concerns the deal could distract the company. "The addition of Bolthouse doesn't address the challenges that Campbell still faces in its domestic soup operations," she told just-food. "We hope that management doesn't get sidetracked integrating Bolthouse and continues to exert significant energy toward righting its high-margin domestic soup operations."

Those concerns could be alleviated by news that Bolthouse Farms will be run as a separate unit and members of the company's senior management team will join Campbell.

There were also some misgivings at the price Campbell paid for Bolthouse, although the company said, when measured at an EBITDA multiple, it was line with with "other similar transactions".

The deal, which is expected to be finalised in the coming weeks, could be followed by further transactions. Morrison, discussing the Bolthouse acquisition last week, said Campbell had other targets for expansion. "It could be acquisitions, partnerships, joint ventures. We have done extensive work identifying faster growing markets and categories and we have targets that we will work to achieve," she said.

In some ways, a deal of this nature was needed at Campbell. It is true the company's domestic soup division has had its challenges and, although Campbell is working hard to rejuvenate sales, analysts remain concerned over the outlook for that side of its business. The concerns Campbell could be side-tracked from revitalising its soup business by the Bolthouse buy are legitimate.

However, right now, there is no way of knowing if Campbell will become distracted and, although moving deeper into chilled foods will present different challenges for the company, that is where consumer demand is focusing its attention. Balancing the tasks of trying to get growth from soup and driving its new chilled food business will be tough but the stagnant nature of soup meant Campbell had to chase categories like chilled.

After years of largely keeping its powder dry on M&A, last week's announcement was a welcome one.