kettle chips (Photo by Keith Beaty/Toronto Star via Getty Images)
Campbell Soup has agreed to sell its European chips business, including UK-based Kettle Foods and Netherlands-based Yellow Chips B.V., to Valeo Foods, a portfolio company of CapVest Partners LLP, for approximately $80 million.
Campbell was advised by Barclays and Weil, Gotshal & Manges LLP. The deal, which is subject to customary closing conditions, is expected to be completed in the first quarter of fiscal-year 2020.
The U.S. soup maker said it will retain the Kettle Brand business in the U.S. and all other geographies except for Europe and the Middle East, and it intends to grow the brand as an important part of its snacks portfolio, which also includes the Cape Cod, GoldFish, Pepperidge Farm, Snack Factory Pretzel Crisps and Snyder’s of Hanover brands.
Campbell will use the proceeds from the divestiture to reduce debt.
The deal is part of the company’s ongoing divestiture of its international business as it narrows its focus on its core canned soup unit and snacks. Earlier this summer, Campbell also announced plans to sell its Danish baked snacks manufacturer Kelsen Group to CTH Invest, a Belgian holding company affiliated with Ferrero, for $300 million and to sell Arnott’s biscuits – by far the biggest single brand in its international portfolio – to PE firm KKR for $2.2 billion.
Like many other traditional CPG companies, Campbell has been grappling with the changing consumer behavior. But revenues increase in its latest quarter has made food investors believe the company’s divestiture strategy is a positive sign to its long-term growth.
Campbell recently posted Q4 revenues of $1.78 billion, a 2% year-over-year organic increase, driven by gains in snacks as well as meal and beverages, while its full fiscal-year 2019 revenues of $8.11 billion represents a 23% year-on-year growth rate.
U.S. soup business in particular saw a 1% year-one-year organic sales increase during the quarter, and snacks sales increased by 3% to reach $967 million.
CEO Mark Clouse said during the earnings call that the results marked the fourth consecutive quarter this year that Campbell had met or exceeded its own financial goals, adding that shedding the underperforming fresh business and international operations will bring the company about $3 billion in net proceeds.
Upon disclosing earnings on August 30, Campbell’s stock priced increased by 6.1%, one of the biggest moves among companies in the S&P 500 index, while its price has gained more than 30% so far this year.
However, Bank of American Merrill Lynch analyst, Bryan Spillane, believes Campbell’s price increase momentum will not last and its $9.6 billion debt will continue to weigh on the stock’s valuation.
He wrote in a client note that Campbell shares were trading at a slight premium to peer firms at 17.8 times post earnings, but they should be trading at a significant discount to the average 16.0 price/earnings ratio of the company.
“In our view, the lower multiple is warranted due to the potential for 2020 to have no growth as [Campbell] implements a new strategy,” Spillane said, giving the company an underperforming $36 price target.
