The deal announced yesterday and approved by both companies’ boards of directors comes with a price tag of $23 per share – or about $5 more than Savos’ closing price on Friday. The premium surprised some investors, as suggested by Campbell’s share slipping 1.2% in early trading while Savos’ shares jumped nearly 28%, and prompted questions about the CPG giant’s ability to drive organic growth at a time when many industry players’ volumes are slipping as consumers pull back on spending in the face of inflation.
“How would you give people a confidence around [this deal] growing the core and adding more” versus “the industry is now slowing completely and everyone has to just do deals” to drive growth, Andrew Lazar, managing director at Barclays Capital, asked Campbell’s leadership during a call yesterday to discuss the acquisition.
Unsurprised by the question, Clouse said the acquisition “is not at all about a statement of lack of confidence in our meals and beverages business or soup. In fact, it really is about adding the building blocks to complete the story of now having this incredibly compelling center store grocery portfolio that’s dependable, that you can plot the path forward with growth” and expect “steady delivery of results.”
He explained for the past five years Campbell’s has steadily and strategically been undergoing a “complete transformation,” with a laser focus on its “one geography, two division roadmap,” which includes stabilizing and growing its meals & beverages and snacks divisions.
“The single most important thing I want you to take away from this deal is that it accelerates the strategy that we have been successfully executing against for the last five years. It will not distract us nor will we depart from our focus. It simply will strengthen it,” Clouse said.
Deal accelerates Campbell’s growth in sauces, frozen meals
Answering additional questions about “why now,” Clouse explained the deal extends Campbell’s presence in the fast-growing on-trend premium frozen meals segment, into which Rao’s recently expanded and where Savos’ Michael Angelo’s brand already plays.
The deal “shifts the balance of our portfolio to more advantage segments within premium and Italian to complement the already strong confidence in our improved and contributing soup business,” he said.
It also “delivers against our stated intent of building a $1bn sauces business by entering the ultra-distinctive sauces market,” and “it has a highly differentiated and advantaged premium frozen segment,” he added.
For support, Clouse pointed to Savos Brands’ 34.9% growth in fiscal 2022, which was driven by its overall portfolio. For example, Rao’s dollar consumption in the past year grew 51% in frozen meals, 52% in dry pasta and 26% in ready-to-serve soup. Michael Angelo’s also saw a 3% dollar consumption compound annual growth between calendar years 2019 and 2022.
Campbell’s sees plenty of runway ahead for Savos Brands
Clouse said he is confident these trajectories will hold after the deal is finalized in part because Savos Brands only has about 14% household penetration with relatively low awareness – both of which Campbell’s is well positioned to bolster given its scale and reach.
He said his confidence is further reinforced by Savos Brands’ strategic approach to expanding into adjacent areas.
“A lot of times in these rapid growth businesses, people tend to take a shotgun approach and start firing out a lot of SKUs and categories and segments. But Savos has been very disciplined in launching only into advantaged categories where they have strong profitability and a clear reason for winning,” he said.
“And so,” he added, “when I look at frozen meals and pizza, when I look at pasta and soup, where they’re just getting started now, we see a tremendous runway ahead. And as we’ve had the benefit to better understand their pipeline, I can tell you that it is very, very compelling and gives us great confidence in these near-end, advantaged adjacencies. We’ve got a terrific opportunity.”
Clouse likewise applauded Savos’ handling of Michael Angelo’s frozen food brand and its yogurt brand Noosa, although the future of the later at Campbell’s sounds less certain.
“In Michael Angelo’s, I see a very complementary frozen platform. I’ve been impressed with the uniqueness of what the offerings are, and how popular and loyal the consumer base is. I think, again, our opportunity there is to continue to provide resources and support to that business as we go forward.”
Noosa touted as ‘terrific’ but future at Campbell’s is unclear
While Clouse also complemented noosa as a “terrific business” and reiterated several times that Campbell’s does not see it as a “distraction,” he also acknowledged that “yogurt is not core to our strategy.”
However, he added, he is excited to see it performing well with strong profitability, which will “allow us to be patient as we evaluate strategic alternatives” for the brand.
“In the meantime, we’ll continue to run the brand with dedicated resources ensuring the team remains focused with the appropriate levels of support to keep their momentum going,” he said.
The deal is expected to close by the end of the year after a customary review.