Campbell Soup (CPB) can now officially turn to pasta sauce to attract investor interest.
The king of chicken noodle soup on Tuesday officially closed on a $2.7 billion deal with Rao's pasta sauce maker Sobos Brands. The deal, announced in August 2023, also includes frozen food brand Michael Angelos and yogurt brand Noosa.
Sobos will be renamed Distinctive Brands and housed within Campbell Soup.
“This is basically a fundamental transformation of an iconic company,” Campbell Soup CEO Mark Close said on Yahoo Finance Live.
The Sobos deal is Campbell's biggest acquisition since former CEO Dennis Morrison spent $4.87 billion to buy pretzel giant Snyder's Lance in 2018. This is Mr. Close's first major deal as head of Campbell Soup, a position he has held since early 2019.
Rao's parent company, which went public in 2021, will join a sauce portfolio that includes low-priced Prego pasta sauce and Swanson soup. Sobos posted sales of $1 billion last year, an increase of 25% from the previous year.
The Rao's brand alone generated $775 million in sales, an increase of 37% year over year.
Campbell stock is down 19% over the past year, compared to a 34% rise in the S&P 500 index (^GSPC). Mr. Close sees the stock's rise largely as a result of Sobos' potential, but declined to speculate on whether the Street has seriously misunderstood the promise of a new acquisition.
First, Campbell believes he expects to save $50 million over the next two years.
Secondly, Mr Close has floated the idea of selling Noosa, considering it “non-core”.
And finally, Rao's is expected to move into new product categories (think frozen desserts) soon to capitalize on the popularity of pasta sauce. These product lines and overall growth plans may be announced at the company's investor day in June.
“We expect this acquisition to be materially accretive to Campbell's organic revenues, increasing by more than 1 percentage point on a firmwide basis,” Stifel analyst Matthew Smith said in a note to clients.
“We expect Mr. Campbell to emphasize [at its investor day] It provides details on the enhanced growth profile of the business, including the Sobos brand, and the growth and profit potential of the snacks segment. ”
Brian Sozzi I'm the executive editor of Yahoo Finance. Follow Sozzi on Twitter/X @BrianSozzi And even more linkedin. Have a tip about a deal, merger, activist situation, or more? Email brian.sozzi@yahoofinance.com.
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