The ketchup maker has often been mentioned as a logical bidder for Campbell, should it put itself up for sale. The soup giant has announced it is undertaking a critical review, stoking takeover speculation. That speculation has been fanned by the stake that activist shareholder Third Point has taken in the company. Third Point has declined to comment to CNBC about whether it has taken a stake in Campbell.
Pinnacle Foods, like Campbell Soup, owns a number of brands that sit in the increasingly desolate center supermarket aisles. Those brands include Duncan Hines frosting, Vlasic pickles and Mrs. Butterworth's syrup. Unlike Campbell, though, Pinnacle also has a large frozen food business and lacks Campbell's crown jewel business, Pepperidge Farm cookies and crackers. It may also have have less room for cost-cutting than does the soup giant.
According to recently filed merger documents, after a back and forth between "Company A" and Pinnacle, Company A told Pinnacle it was not interested in acquiring Pinnacle "because such an acquisition would not be a good strategic fit ... at the current valuation levels." Pinnacle ultimately sold to Conagra Brands.
Company A is Kraft Heinz, sources tell CNBC.
Kraft Heinz is known to be a serial looker of companies — and Pinnacle had been trading at a premium due to takeover speculation — but Kraft Heinz's disinterest in it is notable nonetheless. It implies Kraft Heinz may be looking beyond the center of the store, where growth has been a challenge across the industry. Shoppers are increasingly buying fresh food or snacks that are sold around the store perimeter. The fact it was concerned about valuations indicates it is, unsurprisingly, disciplined on price.
Those reservations may extend to Campbell, where Kraft Heinz would find significant cost savings but also a declining soup business and a challenged fresh food business. Campbell's stock in June hit a low not seen since 2012 but has traded up nearly 25 percent over the past few weeks amid takeover speculation.
To be sure, dealmaking is rarely a perfect pairing, and should Campbell put itself up for sale, the opportunity to buy the soup giant may surpass potential reservations. With Kraft Heinz's cost-cutting reputation and a fumbled bid for Unilever, industry analysts wonder whether it may have difficulty finding a company to welcome it with open arms.
Further, Kraft Heinz — and Heinz before it — has long been intrigued by Campbell, which could help it extract costs in Heinz's soup and beans business.
But the companies and the industry in which both Campbell and Kraft Heinz operate have changed significantly over the past few years.
Kraft Heinz is backed by private equity firm 3G Capital, once known as the darling of Wall Street for its ability to squeeze out cost savings from bloated food companies. The firm acquired Heinz in 2013 and later merged it with Kraft in 2015. The 3G model relies in large part on dealmaking to find cost savings the firm can pour back into the company.
Industry onlookers have been eagerly awaiting Kraft Heinz's next acquisition. After being publicly spurned by Unilever in 2017, though, the food giant has stayed on the sidelines.
In the interim, its stock has dropped roughly 30 percent. After having slashed $1.7 billion, extracted from combining Kraft and Heinz, it now, like its peers, needs growth. It posted a decline of 3.3 percent in its U.S. net sales in the last quarter.
The food giant has set out recently to shift investor expectations, talking down the idea it is focused only on buying large, tired food businesses simply for cost savings. It unveiled a presentation in February focused on its growth efforts and launched a small brand incubator arm, following many of its growth-starved peers.
Meantime, 3G co-founder Jorge Paulo Lemann recently acknowledged at the Milken Institute Global Conference that he was caught flat-footed by onslaught of challenger brands.
"We bought brands that we thought could last forever," he said, according to Forbes. He added, "You could just focus on being very efficient. ... All of a sudden we are being disrupted."
When asked about Kraft Heinz's M&A strategy, Kraft Heinz CEO Bernardo Vieira Hees told analysts in May, "Our framework for capital allocation, organic and inorganic, has not changed. We continue to like big brands. We continue to like business that can travel and continue to like business that we can generate efficiency that can be invested behind growth, brands, products and people."
Privately, Kraft Heinz has participated in a number of auctions of younger, trendier brands, like premium deli meat Columbus Manufacturing and youthful yogurt brand Noosa Yoghurt, sources tell CNBC.
If Kraft Heinz is looking for growth, it is unlikely to find it in Campbell. It told analysts in May that it wet soup business declined 1.9 percent over the past year. The business faces a multitude of competition, not only from other soup brands but also any quick and easy microwavable option.
Its fresh food business, which includes Bolthouse Farms, is clocking a loss of roughly $50 million in earnings before interest tax depreciation and amortization, down from a $150 million gain, sources have told CNBC. Part of Campbell's struggle with the business has been its lack of experience managing fresh food, a skill set in which Kraft Heinz is also limited.
Integration of its recent roughly $6 billion acquisition of pretzel-maker Snyder's-Lance will require heavy lifting, due to the complex way in which the snack company distributes its food.
For Kraft Heinz, to make a bet on a company with these struggles would likely require issuing stock for a shareholder base that has already watched its shares fall, or rely on cash, which may leave Campbell's major shareholders, the Dorrances, with a significant tax bill.
The sources declined to be named because the information is confidential. Kraft Heinz declined to comment.