Breakingviews: Third Point May Need a New Recipe for Its Campbell Soup Turnaround

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Dan Loeb needs Campbell Soup to taste more like the Heinz variety.

The activist investor is trying to replace the board at the indebted food group, which has a market value of around $12 billion. Success in turning the company around could bring an investment win, but it’s a grind more suited to Kraft Heinz backers 3G Capital than Mr. Loeb’s hedge fund, Third Point.

As Mr. Loeb built a stake in Campbell over the summer, the company was conducting a strategic review under the interim chief executive Keith McLoughlin. To the investor’s dismay, Campbell wound up its process in August without deciding to put itself up for auction.

Mr. Loeb nominated 12 new directors last week but is no longer pushing for a sale.

Campbell’s options were limited anyway. Private equity investors might in other circumstances have considered partnering with the founding family’s descendants, who own some 40 percent of the stock. But a deal to buy the pretzel company Snyder’s-Lance left Campbell with nearly $10 billion of debt — more than five times a forecast of its earnings before interest, tax, depreciation and amortization for the current financial year, according to analysis by Thomson Reuters.

Kraft is one of few potential industry buyers. But Warren Buffett, chief executive of Berkshire Hathaway and Kraft’s largest shareholder, recently said it would be hard to justify a large premium.

That may mean Mr. Loeb — assuming he can win over enough insiders to seize control of the board — has to find his own recipe. An obvious place to start would be with Campbell’s costs. The company’s estimated margin before interest, taxes, depreciation and amortization for the year to July 2019 is 18 percent. Unilever and General Mills clock in at around 21 percent.

That means there are some low-hanging tomatoes. If Campbell took two years to get its margin in line with those competitors while growing revenue at a steady 2 percent annually, its equity value could increase by more than a third, according to Breakingviews calculations.

Mr. Loeb has shepherded in new chief executives at other companies, including Sotheby’s and Baxter International. But squeezing out costs is more of a specialty for the likes of 3G, the group behind brewing giant Anheuser Busch-InBev that is also Mr. Buffett’s investment partner in Kraft. Mr. Loeb could, though, aim to take the most accessible chunk out of Campbell’s expenses quickly — and hope that Kraft, with its nearly 30 percent margin before interest, taxes, depreciation and amortization, will do the rest.

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