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Campbell Closes Bolthouse Buyout

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Campbell Soup Company (CPB - Free Report) recently announced that it has completed the acquisition of Bolthouse Farms from private-equity firm Madison Dearborn Partners, LLC by paying $1.55 billion in cash. The company resorted to short- and long-term borrowings to fund the acquisition.

The company has stated that it will operate Bolthouse Farms as a separate business unit. Moreover, Campbell expects that the acquisition will be accretive to its bottom-line and add nearly 5 cents - 7 cents to its fiscal 2013 earnings per share. We believe this inorganic move will enhance the company’s brand portfolio and presence in the U.S. packaged fresh foods market.

As awareness for healthy fresh foods is increasing in the U.S., the transaction is expected to be the best strategic fit for Campbell since Bolthouse is one of the leading producers of fresh foods and beverages in the U.S. The transaction is anticipated to facilitate Campbell in enhancing its market share in the packaged fresh food market, which is worth $12.0 billion.

The products of Bolthouse will compliment Campbell’s V8 beverage segment. The segment is likely to bring consolidated sales of the company to $1.2 billion, representing 10% of the market share.

Other companies in the beverage segment are also moving toward healthier products. Earlier, PepsiCo Inc. (PEP - Free Report) announced its decision to start selling yogurt in the U.S. soon.

Based in Bakersfield, California, Bolthouse has approximately 100 years of experience in developing, manufacturing, and marketing packaged fresh foods in the U.S. The company is one of the market leaders in fresh carrots, premium beverages and refrigerated salad dressing. Bolthouse markets and sells its products under three of its brands - Bolthouse Farms, Earthbound Farms and Green Giant.

Excluding the acquisition costs, Campbell expects to deliver its full fiscal 2012 results as per its earlier projections. The company expects fiscal 2012 sales growth to remain at the lower end of its earlier guidance range of flat to 2%. EBIT for the period is anticipated to be at the lower end of 7% to 9% range, while earnings per share to be in the range of 5% to 7%.

Our Recommendation

We believe that Campbell’s prudent investment and strategic initiatives toward product innovation and brand building will lead to an increase in its customer base and profitability. Moreover, the company’s continuous focus on research and development, in order to further differentiate its higher-margin sauce brands, will strengthen its position in the international markets.

However, rising commodity costs, intense competition from other established players and exposure to unfavorable foreign currency fluctuations may undermine its growth prospects.

Campbell, which currently competes with General Mills Inc. (GIS - Free Report) and H.J. Heinz Company , has a Zacks #3 Rank, implying a short-term Hold rating. Moreover, we have a long-term ‘Neutral’ recommendation over the stock.

Based in Camden, New Jersey, Campbell Soup is one of the world's leading manufacturers of convenience food products. A strong portfolio of well-established brands, including Campbell’s, Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson, and Arnott’s offer a competitive edge to the company and strengthens its position in the market.

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