Dan Loeb's Battle With Campbell Soup Is Heating Up

Over the past few years, the packaged food segment has taken a beating in the market. Americans' tastes are shifting, and though consumers haven't completely banned canned soup and the like from their pantries, sales of those types of foods are nonetheless shrinking. So it should come as little surprise that Campbell Soup (CPB 1.29%) hasn't been on a serious growth path. Riding to the rescue -- at least in his own opinion -- is activist investor Dan Loeb, who has been pushing for the company to put itself up for sale. The Campbell heirs who control about 40% of the stock oppose this move nearly universally.

In this segment from MarketFoolery, host Chris Hill and senior analyst Jason Moser discuss Loeb's latest tactics -- he's trying to oust the entire board next month -- and weigh what he hopes to gain if his long shot succeeds and he gains control of the company. They also reflect on why it's not always such a smart idea for ordinary folks to follow a billionaire investor into a major position.

A full transcript follows the video.

This video was recorded on Oct. 18, 2018.

Chris Hill: We've got a fight going on at Campbell Soup, and frankly, Campbell Soup has never been more interesting. Dan Loeb from Third Point, activist investor that we've talked about from time to time, probably best-known in the recent past for the stake in Darden Restaurants and coming out with the note that Olive Garden needs to stop giving away so many breadsticks.

Jason Moser: [laughs] Was he also the one that was responsible for salting the pasta water?

Hill: I think so.

Moser: Let's be clear, that's a good observation. If you're not salting that water, we have problems.

Hill: Here's the thing. People, myself included, have poked fun at Dan Loeb in the past for various reasons. But you go back and look at that Olive Garden literature, he was right about a lot of things.

Moser: Yes.

Hill: So now, it's Campbell Soup. Loeb and Third Point have nearly a 7% stake in Campbell Soup. The annual meeting for the company is November 29th. Loeb is looking for no less than trying to replace all 12 members of the board of directors.

Moser: All at once! [laughs] Clean house.

Hill: In one fell swoop. No shrinking violet, he and his team put together a video mocking Campbell Soup. I haven't clicked on it yet. As I said, Campbell Soup has never been more interesting. You look at how challenged packaged food is, this is one of those things where I'm not rushing out to buy Campbell Soup, but I could see a bunch of people looking at Loeb's track record -- which, sure, it has some negatives. Every investor has negatives in their track record. But he's got some positives. I could see people looking at this, saying, "Oh, maybe I'll take a whack at this." Maybe he doesn't replace all 12, but he agitates, he gets a few spots on the board, and they can boost this thing. Because it's a really troubled business right now.

Moser: It is. It sounds like he's probably going to have a lot of trouble doing that. From what I've seen, it sounds like most of the family that owns stakes of the business is still against what he's trying to do. But to your point about that video, I didn't watch the video. I saw one line he threw in there, and it made me laugh, because he's really playing this up, it's kind of Hollywood. He's like, "It's time to empty the can, refresh the recipe, and restore shareholder value." And it's like, that's his Threat Level Midnight moment, right? "Clean up on aisle five." I feel like he's really resorting to, not hyperbole, but taking it maybe a little over the top.

Here's the thing, let's assume that he gets control of this business. What do you do? I don't know that it's so plainly obvious. They've been more or less passed in a lot of ways by this newfangled packaged food environment that's out there. A lot of brands out there that resonate with younger consumers now. Campbell isn't necessarily one of them. They did make that big Snyder's-Lance deal last year. I think that actually resulted in, they had to carry about $4.5 billion on their balance sheet, and a lot of it came from that. That represents a third of the company's total assets.

To me, they're clearly challenged on the revenue side. The answer is not just as simple as, "We're going to do this, this, and this. Empty the can, refresh the recipe, and restore shareholder value." What does that mean?! That doesn't mean anything, right? That's not a plan, that's just a bromide.

I feel like he's getting in there and trying to shake things up. I understand that, I appreciate it. Oftentimes, we see folks like this who perhaps are a little overconfident, maybe think they know a little bit more than they do. I'm not a shareholder in Campbell. I'm glad I'm not a shareholder in Campbell, and this does not make me want to be a shareholder in Campbell.

Hill: When you look back at what he did with Darden Restaurants, the parent company of Olive Garden, you could look at that and say, operationally, there are some changes that can be made. In the case of turning around Campbell Soup, I don't see how that happens without, for lack of a better term, financial engineering. I don't see how you turn around Campbell Soup unless you make some significant changes to the cost structure of the business.

Moser: It could be something like a Sears story here. Maybe the answer doesn't really exist. Perhaps it is just whittling down the business and focusing on what really makes money. I do appreciate his perspective, that former leadership was overpaid and didn't deliver. I think that's spot-on. But, I think part of the problem is, the solution isn't so easy. We talk about it all the time here on the show, that's a tough line of work. Ultimately, you really do have to focus on offering very low-cost goods. You don't really maintain a lot of pricing power in this realm.

The Snyder's-Lance acquisition, that's right up my alley. You're talking about chips and pretzels and peanuts, all that stuff. Man, I love it. But that's also something that doesn't necessarily hold the same weight today. Then you look at something like a Pepsi Co, which has really been able to benefit, not only from the salty snacks side, but the beverage side, as well. I think that ultimately is what this all boils down to, is consolidation in this space, in one shape or form. I think Campbell probably is headed down that road at some point or another here.

I don't know that Loeb is going to have his way, ultimately. It sounds like the votes may be stacked against him.

Hill: To go back to something you said before and something I said before, before, when you were talking about activist investors who, if they've had some success, they sometimes feel like they know a little bit more than they actually do. Tie that to, Campbell Soup has never been more interesting than it is right now. And yet -- I want to caution the dozens of listeners, you and I were talking about this earlier this morning -- one of the ripple effects of the bull market that we've had is that people like Dan Loeb, people like Bill Ackman who we talked about recently with his investment in Starbucks -- activist investors and hedge fund managers who have done well in this bull market have more money to throw around. It's one more reason for investors to do a little bit more homework.

I saw a note this morning about a private company hiring Goldman Sachs and JPMorgan Chase to handle their IPO. It's a company called Beyond Meat.

Moser: Oh, I read about that!

Hill: And one of the investors is Bill Gates. You could see an investor out there saying, "Oh! Gates is investing, maybe I should take a look at it!" Well, take a close look at it, because Bill Gates has all the money in the world. This is a rounding error for him, in terms of his investments. Same thing with Loeb and Bill Ackman and other activist investors. As they do well, they have more money to throw around, more opportunities to try and turn companies around. Not all of them are going to work.

Moser: No, they don't. They have the ability to take on more risk. I can guarantee you that their money isn't as important to them as yours is to you, because they have a lot more of it. That's the first thing I always think about when I look at what these people are doing. They're smart people --

Hill: It's situational money. Whatever Bill Gates invested in Beyond Meat is pocket change to him.

Moser: Exactly. Most individual investors like us, we don't have that sort of pocket change. For me, I find it always interesting to see where people have their heads at. I think it's a good reminder to not just jump in blindly and follow what other people are doing. That's not to say Loeb and Ackman and all these guys aren't smart folks. They are, they're very smart guys. There's no argument there. This is not about intelligence. This is about, like you said, having more money to invest in more things. So, when you have that situation, you can take some more risks. Maybe you throw your money at ten different investments, and the hope is that one of them ends up paying off. I think that's always a good reminder for individual investors like us. Don't look to these activists as a point of optimism. It's interesting, learn from it, but be very careful before you decide to go following their footsteps.

Hill: Fun to talk about, though.

Moser: Yes, always!