Pitch books on Campbell Soup have piled up for years. Most of them are unused.
Activist hedge fund Third Point pulled out one of the oldest — sell the whole business. Founder Dan Loeb wants to oust the company's entire board to move forward on this plan. But maybe Campbell is better suited for another option: shed the company's many brands and take the soup business private. That's an option bankers have pondered for years.
Things aren't going well for one of America's oldest soup companies. Sales for Campbell's soup business plummeted 14 percent this past quarter. Its shares are also down, having dropped 24 percent since January. The company has delivered a 19 percent total shareholder return while the S&P 500 has nearly tripled over the last two years. It's grappling with debt-load that is counter to the company's typically conservative philosophy.
But Campbell is the No. 1 U.S. soup brand with an iconic heritage. Even with the sales decline, it last year generated roughly $600 million in cash*. Its 30 percent margins are enviable**. That profit helps support Campbell's iconic brands, like Pepperidge Farm cookies and Goldfish crackers. But it hasn't been enough to appease public investors, who crave growth and activist agitators like Loeb, who demand a quick turnaround.
Taking Campbell's soup business private would give the company's founding family a reprieve to feast off its cash flow and iconic stature with less public pressure. The company could save the millions of dollars it and all publicly traded companies spend on securities filings, controls and accounting. It could avoid costly acquisition mistakes, throwing the soup businesses' cash flow toward risky bets on growth, trying to give public investors what its soup business cannot.
Campbell paid $1.55 billion for carrot and smoothie company Bolthouse Farms in 2012, looking to jump on the fresh food trend. It's now selling Bolthouse, along with its other fresh food businesses, after struggles due to inexperience and an ill-timed drought. The fresh food unit posted an operating loss of $7 million last quarter.
Campbell last year paid $6.2 billion for pretzel and chip company Snyder's-Lance looking for growth in snacks. The soup company continues to stand by the deal — interim CEO Keith McLoughlin told analysts in August that the company is "even more convinced of the growth prospects and synergies." But it more than tripled Campbell's debt burden. It brought with it a business that will be challenging to integrate.
There was concern from the onset about the leverage the company took on to fund the deal. Yet there were few assets left for Campbell to buy that were both growing and of scale, a person familiar with the deal tells CNBC.