Kraft Heinz is backed by private equity firm 3G Capital, once known as the darling of Wall Street for its ability to squeeze out cost savings from bloated food companies. 3G acquired Heinz in 2013 and later merged it with Kraft in 2015. The 3G model relies in large part on dealmaking to find cost savings the firm can pour back into the company.
Industry onlookers have been eagerly awaiting Kraft Heinz’s next acquisition. After being publicly spurned by Unilever in 2017, though, the food giant has stayed on the sidelines.
In the interim, its stock has dropped roughly 30 percent. After having slashed $1.7 billion, extracted from combining Kraft and Heinz, it now, like its peers, needs growth. It last quarter posted 3 percent sales growth.
The food giant has set out recently to shift investor expectations, talking down the idea it is only focused on buying large, tired food businesses simply for cost savings. It unveiled a presentation in February focused on its growth efforts and launched a small brand incubator arm, following suit of many of its growth-starved peers.
Meantime, 3G co-founder, Jorge Paulo Lemann, recently acknowledged being caught flat-footed by onslaught of challenger brands at the Milken Institute Global Conference.
“We bought brands that we thought could last forever,” he said, according to Forbes. He added, “You could just focus on being very efficient … All of a sudden we are being disrupted.”
When asked about Kraft Heinz’s M&A strategy, Kraft Heinz CEO Bernardo Vieira Hees told analysts in May, “Our framework for capital allocation, organic and inorganic, has not changed. We continue to like big brands. We continue to like business that can travel and continue to like business that we can generate efficiency that can be invested behind growth, brands, products and people.”
Privately, Kraft Heinz has participated in a number of auctions of younger, trendier brands, like premium deli meat Columbus Manufacturing and youthful yogurt brand Noosa Yoghurt, sources tell CNBC.
If Kraft Heinz is looking for growth, it is unlikely to find it in Campbell. Its wet soup business declined 1.9 percent over the past year, it told analysts in May. The business faces a multitude of competition, not only from other soup brands but also any quick and easy microwavable option.
Its fresh food business, meantime, which includes Bolthouse Farms, is clocking a loss of roughly $50 million in earnings before interest tax depreciation and amortization, down from a $150 million gain, sources have told CNBC. Part of Campbell’s struggle with the business has been its lack of experience managing fresh food, a skill set in which Kraft Heinz is also limited.
Integration of its recent roughly $6 billion acquisition of pretzel-maker Snyder’s-Lance will require heavy lifting, due to the complex way in which the snack company distributes its food.
For Kraft Heinz to make a bet on a company with these struggles, would likely require issuing stock for a shareholder base that has already watched its shares fall or rely on cash, which may leave Campbell’s major shareholders, the Dorrances, with a significant tax bill.
The sources declined to be named because the information is confidential. Kraft Heinz declined to comment.