Campbell Soup announced on Monday the terms of a truce it has reached with Third Point, which will add two of the activist fund’s nominees to its board: former Blue Buffalo CEO Kurt Schmidt and Comscore President Sarah Hofstetter.
Campbell shareholders are set to meet on Thursday. Shares of Campbell were down more than 4 percent in afternoon trading.
As part of the deal, Campbell will expand the size of its board by at least two board seats. Campbell can expand it to 14 with board approval. Its bylaws could be amended to boost the board even more.
Third Point will have input on a third director that Campbell plans to add by its meeting in May 2019. It will also have input on Campbell’s CEO search.
Campbell had previously said it would add Hofstetter and Schmidt to its board. It had pushed back against adding two other Third Point nominees, former Campbell executive Bill Toler and Third Point executive Munib Islam.
The settlement concludes a months-long proxy battle that ended far different than it began. Dan Loeb’s Third Point had first pushed for a sale of the company and later a full ouster of its board. Campbell has so far remained independent and granted only two of Third Point’s nominees seats on its board.
Third Point has faced steep odds since the onset. The descendants of Campbell’s founder own at least 41 percent of the company. While there have been prior family fractures, the family has historically banded together to protect the soup company. Three of Campbell’s heirs sit on its board.
Third Point first unveiled its stake in Campbell in August. The soup company was vulnerable — just months prior, it had announced a strategic review and the sudden departure of its CEO after “unacceptable” earnings results. Third Point said the “only justifiable outcome” of the review was a sale to a strategic buyer.
To support its efforts, Third Point partnered with George Strawbridge Jr., a descendant of soup company’s founder. Strawbridge’s son has in the past pitched to certain Campbell board members the idea of a sale to Kraft Heinz, a person familiar with the situation tells CNBC.
In order for Third Point and Strawbridge’s campaign to work, Strawbridge needed to turn at least some his family members to his side. Two of them seemed unlikely: Mary Alice Malone and Bennett Dorrance, children of Campbell’s former chairman who collectively own roughly 33.1 percent of the company. The brother and sister have long been fiercely loyal to the soup company.
How other family members might fall, though, was less clear. Bennett and Mary Alice’s cousin, board member Archie Van Beuren, has sole voting power of the Campbell Voting Trust, through which other Dorrance descendants together hold a combined 5.85 percent of Campbell. Cousin Charlotte Weber owns roughly 4 percent in the soup company.
Those family members struck a blow to the Third Point and Strawbridge pairing when they publicly pledged their allegiance to the soup company in October.
Meantime, Third Point and Strawbridge faced other obstacles. Kraft Heinz may have previously flirted with the idea of buying Campbell, but the industry has changed significantly over the past few years. Kraft Heinz, once Wall Street’s darling due to its ability to slash costs from bloated food companies, has had its own recent struggles with growth. Those challenges, along with a falling stock price, made it unlikely it would want to pay big dollars to buy the struggling soup company.
Third Point ultimately moved from demanding a sale to saying it would accept other moves, including a split. Meantime, after initial calls to replace all of Campbell’s board, it lobbied to add only five directors to its board.
A series of missteps and poor financial performance, though, had left Campbell with vulnerabilities of its own. Campbell has delivered a 19 percent total shareholder return over the last 20 years, while the S&P 500 has nearly tripled in that period. It hasn’t had a CEO since Morrison’s abrupt departure in May.
It is now selling its fresh food business, undoing efforts to move into the faster-growing area of the grocery store. After struggles due to inexperience and an ill-timed drought, the fresh food unit this past quarter posted an operating loss of $3 million. Campbell’s most recent acquisition, its $6.2 billion purchase of pretzel and chip company Snyder’s-Lance, more than tripled its debt burden.
“Subpar oversight” of issues such as M&A, as well as its financial performance, helped drive shareholder advisory firm ISS’ support of Third Point’s five-person slate, announced earlier this month. The opinion of the influential firm put pressure on Campbell to offer board concessions, even if family votes helped fortify its defenses.
The opinion came before Campbell’s recent better-than-expected first-quarter earnings.
With its proxy battle concluded, Campbell is now likely to refocus on its CEO search and the businesses it is selling to pay down the debt it accumulated through its Snyder’s-Lance acquisition. It has also been working to turn around its soup business.
“The CEO hiring becomes the next headline for the company, in our view, and we believe the company is more likely to entertain an external candidate now that Third Point is involved in the process,” wrote analysts at Stifel this morning.
Meantime, while new voices may add urgency to its turnaround, the company requires two-thirds shareholder vote approval for major deals, ensuring the family’s voice continues to be a powerful one.