Categories Earnings, Retail

Campbell rallies on rumored deal with Kraft

Reports have emerged that Kraft Heinz (KHC) is interested in buying Campbell Soup (CPB), sending Campbell shares soaring 10% during morning trade on Monday. There is no confirmation on this news and it is not yet clear whether Kraft or Campbell have hired a bank to explore any deal options, which is usually the first step in formally pursuing deals. Campbell’s biggest shareholders have also not revealed any intention to sell the company.

Campbell, which saw the departure of its CEO Denise Morrison last month, had announced a strategic review but did not reveal any further details on it. The company intends to disclose the results of the review in August. Campbell, which is struggling in its core soup business, is facing massive pressure to make changes and to explore all available options to turn the business around.

After facing a slowdown in its soup business, Campbell tried to branch out into the fresh foods business but this did not yield the desired results due to heavy competition in the grocery space from the likes of Amazon’s (AMZN) Whole Foods and Walmart (WMT). Campbell’s attempts to boost its snacks business through the acquisition of Snyder’s-Lance increased its debt load.

Campbell has been long viewed as a target for acquisitions with Kraft Heinz and General Mills (GIS) as potential buyers. It is not clear whether Kraft will take an interest in Campbell while it is struggling with issues of its own. There are analysts who feel Kraft should not buy Campbell because by doing so Kraft would land up with more debt and not much value. They also believe that Kraft is capable of growing its business without this kind of a deal. General Mills has not provided any information with regards to its intentions on Campbell.

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The food industry is going through a tough time with companies facing numerous challenges in growth and expansion. This combined with tough competition has led to many large packaged food companies looking at mergers and acquisitions to stay afloat. Several large companies have picked up smaller ones to boost their available revenue sources and to open up fresh revenue streams.

It is not clear whether a large company like Campbell will create enough interest in its rivals for a partnership that will come at a big purchase price. Campbell otherwise has an option to split its soup and snacks businesses and make strategic changes to the soup business to increase its sales. Campbell shares have fallen 12% this year while Kraft shares have dropped 17%.

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