Third Point pushes to replace Campbell Soup's board
- Investment firm Third Point LLC — a 6% shareholder of Campbell Soup Company — has filed a proxy statement with the Securities and Exchanges Commission calling for replacing all members of the company's board of directors at the 2018 shareholders meeting. In a letter released via Business Wire, The New York-based firm stated it wants to replace the current leadership with “qualified nominees.”
- The letter to all shareholders also claims that Campbell’s current board has made a series of strategic mistakes that devalued the company’s holdings and a total changeover is the only way to improve performance and regain lost investments.
- Campbell has been scrutinizing its own operations and recently made the decision to divest international businesses and its Fresh division. "On August 30, following a comprehensive board-led strategy and portfolio review, Campbell announced a clear and executable path forward to maximize shareholder value," the company said in a statement sent to Food Dive on Monday. "The board considered all options during the review, including selling the company. The board is confident that this plan is the best path forward for Campbell at this time. Management is focused on implementing the plan and setting the foundation for sustainable, profitable growth in fiscal 2020 and beyond. Importantly, the board remains committed to evaluating all strategic options to enhance value in the future."
Although Third Point officially announced its campaign to replace the board last month, this new letter is adding pressure toward significant changes. The food company’s stock price has mostly been on the decline, and is about 22% lower today than a year ago.
According to Third Point's letter, shares of Campbell have not gained much value during the past 20 years: $1 invested in Campbell in August 1998 is worth $1.34 today. The activist investors said that dollar could be worth as much as $16.37 if invested Hormel instead.
In fact, CNBC reports that Third Point believes Campbell could get up to $58 per share — far above the $36.64 share price Tuesday morning — given the right leadership. The letter implies the poor share values come from leadership blunders and the lack of a permanent CEO following Denise Morrison's abrupt retirement in May. Third Point’s ideal board combines diverse expertise and similar interests to investors.
Keith McLoughlin, interim CEO since May, has been working to improve the company's returns by cutting the focus on fresh items and turning toward packaged foods and snacks. In an effort to improve the company’s value, Campbell announced as part of a strategic review in August the decision to sell its Fresh business and international operations to pay down debt and reduce costs. Although it’s still too early to see how this move will impact business, Campbell's debt has climbed to $9.9 billion — almost three times the $3.5 billion from a year ago.
Can new leadership help? As Campbell is working to divest different interests, it's also been active in the acquisition arena — which brought about the mounting debt. In the last year, the company has picked up Pacific Brands, known for its natural soups, and snacking giant Snyder’s-Lance. It makes sense to concentrate on the trendy snacking arena as well as the flagship products that made the New Jersey company a household name. Perhaps some new leadership with a laser focus in improving these segments could be just want the flailing company needs.
However, with all the challenges facing the food industry in general, is Third Point's idea of a $58 valuation even plausible?
As sales and returns slide, more and more grocery stores and CPG brands find themselves targeted by activist investors. But will this letter from Third Point make a difference? Campbell has been making changes to improve its business during the last year, including the Snyder’s-Lance purchase, announcing the divestitures and appointing new leadership, highlighted by the naming of Luca Mignini to the newly created role of chief operating officer. It's apparent these and other moves by Campbell have not been enough to appease Third Point, setting the stage for what could be an interesting battle over the future of an iconic company.