Campbell’s to buy Italian sauce maker Sovos in US$2.33 billion cash deal

08 Aug 2023 --- Campbell Soup Company is set to acquire Rao’s and Michael Angelo’s owner Sovos Brands for US$23 per share in cash. The deal is valued at US$2.7 billion, including debt and is expected to close by the end of this year. Sovos will receive US$23 per share from Campbell’s, a nearly 28% premium to the stock’s last close.

Sovos’ shares were trading at US$22.48, while Campbell plunged 1.2% to US$44.58 in early trade.

Commenting on the development, Mark Clouse, president and CEO of Campbell, says: “We’re thrilled to add the most compelling growth story in the food industry and welcome the talented employees who have built a nearly US$1 billion portfolio.”

Clouse adds that the acquisition “fits perfectly with and accelerates” the company’s strategy of “focusing on one geography, two divisions and select key categories that we know well.”

Sovos Brands’ results will be managed under Campbell’s Meals & Beverage division once the transaction completes.Financing the purchase
Campbell plans to finance the purchase through the issuance of new debt and expects the leverage to be “approximately four times” at closing.

Sovos Brands’ results will be managed under Campbell’s Meals & Beverage division once the transaction completes.

“Our focused strategy has enabled us to deliver strong results over the last five years, enhance our brands and capabilities and generate strong cash flow to lower debt. With all this progress, I am confident in our readiness to execute and integrate this important acquisition,” he states.

“This transaction is expected to create substantial value for our shareholders, resulting in a 92% increase from our 2021 IPO price,” remarks Todd Lachman, founder, president and chief executive officer of Sovos Brands.

A compelling growth story
Under its brand names Rao’s, Michael Angelo’s and Noosa, Sovos offers a range of premium-positioned pasta sauces, dry pasta, soups, frozen entrées, frozen pizza and yogurts.

The new move provides these brands a “significant whitespace opportunity” by pushing distribution, growing items per store and household penetration to category peer levels.

In 2022, Sovos witnessed sales to the tune of US$837 million. Rao’s represented approximately 69% of its adjusted net sales and grew organic net sales by 34.9% compared to the prior year.

The deal benefits both companies, with Campbell’s bringing in its expertise in retail execution to “enhance shelf productivity, geographic footprint and sub-category penetration” and Sovos’s offering its prowess in innovation, category expansion and the marketing of high-growth brands to add to Campbell’s capabilities.

A push to the strategic plan
The move delivers Campbell’s US$1 billion sauces strategic objective by filling in “critical white space” in the growing Italian sauce category, a segment where Campbell’s does not currently compete.

The inclusion of Sovo’s products in Campbell solidifies the role of the Meals & Beverages division as a sustainable and dependable contributor to the enterprise.Campbell plans to finance the purchase through the issuance of new debt.

It also extends Campbell’s presence in the “fast-growing, on-trend, premium” frozen meals segment with Rao’s and Michael Angelo’s while expanding its existing Pepperidge Farm’s frozen portfolio.

Campbell expects “continued strong cash flow” from operations and is keen on maintaining its capital allocation priorities, such as continued investment in key growth and productivity initiatives in the business, maintaining a competitive dividend, focusing on reaching its target leverage ratio of approximately three times by the end of the third year.

The FMCG giant also expects to continue its anti-dilutive share repurchases.

The company recently expanded its Goldfish crackers production to meet rising consumer demand.

The transaction’s closure depends on Sovos Brands’ stockholder approval and customary closing conditions, including regulatory approvals.

Both boards of directors have given their nod to the transaction.

By Insha Naureen

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