Nuts to an Acquisition of Campbell Soup
Sept. 7, 2014 4:21 p.m. ET
Campbell Soup Co. ticks all the boxes when it comes to being an iconic American food company.
Founded in the 19th Century? Check. Still influenced by the founder's heirs? Check. Tepid earnings growth of late? Check.
Monday's results for fiscal 2014, ended in July, may look good in comparison with year-earlier figures.
Earnings per share are seen at $2.52 compared with $2.17, but the gain is mainly attributable to the disposal of a poorly performing European unit late in fiscal 2013.
And back in May, Campbell cut guidance for the current year, while in July it cautioned on revenue in fiscal 2015. Compound annual earnings-per-share growth in the decade to 2013 was barely above 4%.
Disappointing results at companies such as H.J. Heinz, Anheuser-Buschand Hershey Co. in recent years prompted takeover bids for them.
The first two were completed, while the attempt on Hershey stirred public outrage. The company is still controlled by a trust.
A flurry of options activity in recent weeks has rekindled speculation about Campbell, but this is a recurring theme.
It was seen as a target in 1989, when the founder's son died, and again in 1996, when one of his grandchildren dumped much of his stock.
Early last year, when Warren Buffett's Berkshire Hathaway Inc.participated in a buyout of Heinz, speculation rose again, along with Campbell's share price.
A complication for any acquirer is that more than 40% of Campbell is still controlled by the founder's heirs. These senior citizens would be subject to chunky capital gains taxes if they sold. And they enjoy a respectable dividend yield of 3%, double that of competitor Mondelez International Inc.
Even if a bidder were willing to pay a premium for a stock already anticipating takeover interest, there is no urgency to sell.
Having made a 1,000% return since 1989, the "first family of soup" won't be bowled over by another 20% or 30%. The return on the dollars Campbell doesn't pay out are high: Its average return on invested capital in the past five years was far higher than at major competitors.
Though funding for deals is ultracheap and Campbell may make a great fit, the message to acquirers is unlikely to change: No soup for you!
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