Campbell Soup Fortifies Snacks Division, Buys Snyder's-Lance

Campbell Soup Company (NYSE:CPB) has agreed to buy the leading snacks maker — Snyder’s-Lance, Inc. (NASDAQ:LNCE) — in an all-cash deal worth nearly $4.87 billion or $50 per share. The price reflects approximately 27% premium on Snyder’s-Lance’s closing stock price on Dec. 13, 2017. This will form part of the buyer’s Global Biscuits and Snacks segment including the Pepperidge Farm, Arnott’s and Kelsen businesses along with the simple meals and shelf-stable beverages operations in Australia, Asia Pacific and Latin America. This buyout is likely to aid Campbell Soup in strengthening its portfolio of snacking brands, hence making it a snacking leader.

The deal, which is expected to close in the early second quarter of 2018, is likely to be financed through $6.2 billion of debt involving both long-term and short-term debt. Further, it is anticipated to be accretive to adjusted earnings in fiscal 2019, which excludes integration and synergies expenses.

For the past 12 months ending on Sep 30, 2017, Snyder’s-Lance has generated $2.2 billion in net sales.

Notably, the transaction has been approved by the board of directors of both companies but awaits approval from Snyder’s-Lance shareholders along with customary regulatory authorities and other closing conditions. However, some members of the Warehime family who collectively has 13.2% of Snyder’s-Lance’s outstanding common stock have voted in favor of the deal.

Furthermore, the deal results into the suspension of Campbell Soup’s share buybacks in order to maximize free cash flow for paying down debt. Yet, management plans to maintain its existing dividend policy.

How the Transaction Will Benefit Campbell Soup?

The latest deal is likely to boost the Campbell Soup’s overall sales, besides widening its footprint in the $89 billion U.S. snacking market. Following the acquisition, Campbell Soup’s snacking business is likely to add nearly 46% to the company’s net sales annually, on a pro forma basis. Earlier, it represented approximately 31% of sales. We note that the company’s soup portfolio, which includes the acquisition of Pacific Foods, would reflect roughly 27% of its yearly net sales.

In fact, the deal is likely to speed up Campbell Soup’s access to faster-growing distribution channels, which also encompasses the natural channels. Additionally, it is expected to boost the company’s strategy and provide its customers with better variety of better-for-you snacks.

As said earlier, the acquisition forms part of the Campbell Soup’s Global Biscuits and Snacks division, which contributed roughly 32.8% in first-quarter fiscal 2018. In fiscal 2017, the company’s baked snacks product portfolio generated nearly $2.5 billion net sales. We believe Snyder’s-Lance’s popular brands like Snyder’s of Hanover, Lance, Kettle Brand, Cape Cod and Snack Factory Pretzel Crisps among others are likely to diversify the segment’s brands portfolio, hence boosting its performance.

Stock’s Performance

Campbell Soup carries a Zacks Rank #4 (Sell). A look upon the stock’s price performance in the last six months shows that it has lost 9.2%, wider than the industry’s decline of 2%.

Nevertheless, Campbell Soup remains keen on making acquisitions in a bid to enhance its brand portfolio and accelerate future growth. In fact, the afore-mentioned deal will mark the company’s sixth buyout in the last five years. We expect the potential acquisition to generate synergic benefits along with increasing the company’s overall profitability.

Meanwhile, you can count upon some better-ranked stocks in the same industry that includes Nomad Foods Limited (NYSE:NOMD) and Lamb Weston Holdings, Inc. (NYSE:LW) carrying a Zacks rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nomad Foods has delivered a positive earnings surprise of 26.1% in the last quarter.

Lamb Weston has pulled off an average positive earnings surprise of 11% in the trailing four quarters.

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