It has been a super year for the broader stock market. It has not been a good year for Campbell Soup (CPB 50.46, +0.87, +1.8%). Entering today's trading, shares of CPB were down 18% as investors have not responded kindly to the company's disappointing operating results.
That disappointment has been a byproduct of increased competition, promotional activity, and changing consumer preferences for food that have not worked in Campbell's favor.
Unfortunately, the company has lamented the prospect of the operating environment remaining difficult in fiscal 2018. Analysts in turn have expressed their reservations about Campbell's growth prospects, calling attention to a greater need to step up its cost reduction efforts and/or to make a transformative acquisition that will bolster Campbell's growth prospects.
Campbell appears to be heeding that insight as it announced today the acquisition of Snyder's-Lance (LNCE 49.89, +3.10, +6.6%) for $50 per share in an all-cash transaction. Snyder's-Lance is a leading snacking company that generates approximately $2.2 billion from sales of snack brands that include, but are not limited to, Cape Cod, Pop Secret, Emerald, and Snyder's of Hanover.
The intent is to integrate Snyder's Snack Food business with Campbell's baked snacks product portfolio, which generated approximately $2.5 billion in net sales in fiscal 2017.
When that combination is complete, the sales of snack foods will account for approximately 46% of Campbell's annual net sales, proving that Campbell isn't just a soup company. The soup portfolio, it was said, will represent approximately 27% of Campbell's annual net sales.
Campbell aims to close the deal early in the second calendar quarter of 2018. The company anticipates the acquisition will be accretive to earnings per share in fiscal 2019 and that it will result in approximately $170 million in cost synergies by the end of fiscal 2022.
The deal will be financed with $6.2 billion in debt which will be a combination of short-term and long-term debt. That will result in pro forma leverage of 4.8x at closing, which Campbell said it is committed to reducing to approximately 3x by fiscal 2022.
The offer price for LNCE represents a 27% premium over its closing price on December 13, which is the last day before press reports pointed to the possibility of a potential transaction.